The British Pound may decline while the US Dollar extends gains as traders size up minutes from the latest BOE and FOMC monetary policy meetings.
Talking Points:
British Pound May Fall if BOE Minutes Pour Cold Water on Rate Hike Bets
US Dollar to Advance if Fed Meeting Minutes Dent Markets’ Dovish Outlook
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Minutes from May’s Bank of England policy meeting are in focus in European trading hours. Last week’s quarterly Inflation Report revealed that the central bank is assuming its first post-crisis interest rate hike will occur around mid-2016. That is significantly later than what is being implied by priced-in market expectations. Indeed, futures market pricing implies lift-off in the first quarter of next year. If the Minutes document shines light on this disparity, investors may well have to adjust expectations outward, sending the British Pound lower.
Later in the day, the spotlight shifts to minutes from April’s FOMC sit-down. Janet Yellen and company have argued that weakness seen through the winter is transitory. Indeed, there seem to be striking parallels between the first-quarter slumps in 2014 and 2015. Last year, the markets bet on a slowdown or pause of the QE “taper” after the winter downturn only to be met with steadfast resolve on from the FOMC. A parallel result this time would imply a rate hike around mid-year, not late in the fourth quarter as is now predicted. A Minutes release supportive of such a scenario could offer further support to the US Dollar after the currency issue the largest advance in two months yesterday.
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