Pound at Risk on Status-Quo BOE Minutes, US Dollar May Rise on CPI

The British Pound may fall if minutes from October’s BOE meeting show the hawks unable to expand their ranks. The US Dollar may rise if inflation data tops forecasts.

Talking Points:

• British Pound May Drop on Status-Quo Bank of England Meeting Minutes

• US Dollar to Rise if September’s CPI Tops Forecasts, Boosting Fed Outlook

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Minutes from October’s Bank of England policy meeting headline the economic calendar in European hours. The voting pattern on the rate-setting MPC committee will be in focus, with traders keen to see if the hawks were able to inch closer to securing enough voices in favor of a rate hike. The tally was 7-2 in support of the status quo in September.

On balance, UK economic news-flow deteriorated relative to consensus forecasts between the September and October sit-downs. Perhaps most significantly, September’s CPI data set showed the year-on-year inflation rate unexpectedly sank to 1.2 percent, the lowest since the post-crisis trough recorded five years prior. That suggests that an expansion of the pro-tightening contingent probably did not materialize.

Confirmation of as much may further undermine the probability of relatively sooner start to policy normalization in the minds of investors. Such a scenario bodes ill for the British Pound, which has broadly tracked a slide in front-end Gilt yields downward since early July.

Later in the day, the spotlight shifts to the US CPI report. The year-on-year inflation rate is expected to slow to 1.6 percent, the lowest since March. However, leading survey data warns that price growth accelerated, with factory-gate prices rising at the sharpest pace yet in 2014 and service-sector output costs reaching a five-month high. That opens the door for an upside surprise, which could help rebuild 2015 Fed rate hike expectations and boost the US Dollar.

Renewed fears of the relatively sooner onset of US policy tightening against a backdrop of swelling global slowdown fears may likewise undermine risk appetite amid fears that growth in North America will be insufficient to offset downturns in the Eurozone and China. That might put risk-geared currencies such the Australian and New Zealand Dollars under pressure while boosting safety-linked alternatives like the Japanese Yen.