Pound Eyes Carney Comments, Risk Aversion Poised to Continue

The British Pound is looking to comments from Bank of England Governor Carney for direction while S&P 500 futures hint risk aversion is likely to continue.

Talking Points:

• Euro Unlikely to Find Lasting Follow-Through in German Inflation Figures

• British Pound Looks to Carney Comments for Cues After Hitting 5-Month Low

• See Economic Releases Directly on Your Charts with the DailyFX News App

Risk aversion continued to dominate financial markets in overnight trade. The sentiment-geared Australian and New Zealand Dollars plunged alongside Asian stocks while the safety-linked Japanese Yen outperformed. The MSCI Asia Pacific regional benchmark equity index fell 2 percent in a follow-on move after a deep slump on Wall Street.

S&P 500 futures are pointing substantively lower ahead of the opening bell in Europe, hinting the risk-off dynamic is likely to continue in the hours ahead. The preliminary set of September’s German CPI figures is in focus on the economic data front. The benchmark year-on-year inflation rate is expected to tick lower to 0.1 percent, the lowest in seven months.

News-flow out of the Eurozone’s largest economy has increasingly outperformed relative to consensus forecast since early July, opening the door for an upside surprise. The Euro may not see significant follow-through from such a result however considering the central bank has dismissed re-visiting the size of its QE effort before December.

Meanwhile, Bank of England Governor Mark Carney is due to speak. Interest rate hike expectations have unraveled alongside a plunge in global share prices since mid-month, suggesting traders are betting that market turmoil will encourage the MPC to wait before starting to remove accommodation. The British Pound has dutifully declined, touching a five-month low against the US Dollar late last week.

Carney had been somewhat dismissive of risk trends’ impact on the trajectory of monetary policy and traders will look for a dovish tone shift this time around to confirm their suspicions. The UK unit is likely to extend losses in this scenario. Alternatively, comments paving the way for tightening in the relatively near term may offer a lifeline to the embattled currency, although it ought to be kept in mind that similar rhetoric has been unable to offer lasting support in recent weeks.