The US Dollar and the British Pound may decline as soft UK and US inflation figures undermine Fed and Bank of England interest rate hike speculation.
Talking Points:
British Pound May Extend Losses as Soft CPI Undermines BOE Rates Outlook
Overnight US Dollar Weakness May Continue as PPI Drop Weakens Fed Bets
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October’s UK CPI figures headline the economic calendar in European trading hours. The headline year-on-year inflation rate is expected to print at 1.2 percent, unchanged from the five-year low recorded in the prior month. Leading survey data hints a downside surprise may be in the cards however. PMI figures from Markit Economics suggest output prices in the service sector fell for the first time in 17 months in October while those on the manufacturing side rose at the slowest pace in since June 2013. A soft outcome is likely to pour cold water on BOE rate hike speculation, weighing on the British Pound.
Later in the day, the spotlight shifts to US PPI figures. The year-on-year wholesale inflation rate is seen slowing to 1.3 percent in October, marking an eight-month low. Leading indicators reinforce the probability of a downtick, showing factory-gate prices in the manufacturing sector rose at the slowest pace in four months in October. Service-sector pricing trends likewise pointed to moderation over the same period.
Investors may interpret a weak result as suggesting that the Fed will be relatively slow to issue its first post-QE interest rate hike, punishing the US Dollar. In fact, ebbing support from the policy outlook already appeared to sting the greenback overnight, with prices edging lower alongside the benchmark 10-year Treasury bond yield. Follow-through may prove limited however as markets await the release of minutes from October’s FOMC meeting on Wednesday before showing directional commitment.
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