The first official policy speech from Bank of England Governor Mark Carney is in focus in European trading hours. He is expected to discuss the new forward guidance introduced at the bank’s last policy meeting. The scheme amounts to a pledge to keep the benchmark lending rate at a record-low 0.5 percent as long as inflation 18-24 months is seen below 2.5 percent and the unemployment rate is above 7 percent.
The British Pound rose after the guidance regime was announced, apparently reflecting investors’ expectation that the BOE’s conditions for reevaluating the policy have been set such that they will be hit before the bank envisions. With that in mind, a dovish tone that talks down the likelihood of a premature, forced move away from an accommodative posture may weigh on the UK unit.
On balance, Carney seems to have relatively little room to push expectations into dovish territory. Investors have already heard that the “knockout” conditions are not hard triggers to abandon guidance-driven policy. They’ve likewise seen the bank argue that the market has mispriced the outlook on monetary policy as too hawkish. Short of abandoning the “knockouts” – a move that would severely jeopardize the BOE’s credibility – the doves seem set up for a disppointment. We remain short EURGBP.
The sentiment-linked Australian and New Zealand Dollars underperformed against their top counterparts as Asian stocks followed Wall Street lower overnight. The MSCI Asia Pacific regional benchmark equity index fell 0.7 percent. Risk aversion appears to reflect swelling geopolitical risk amid signs that the US and its allies are preparing to strike Syria following reports of the government’s use of chemical weapons against anti-regime rebels.
The prospect of direct Western involvement in Syria’s bloody civil conflict is driving concerns about spillover into wider regional turmoil. Negative economic growth implications of such an outcome – particularly the possibility of a major disruption in oil delivery – are unnerving investors. Indeed, crude prices have shot upward to probe the highest levels in over two years. The US Dollar was best-supported on the session, adding as much as 0.3 percent on average against the majors.
|1:20||AUD||CBAHIA House Affordability (2Q)||72.8||–||69.7|
|1:30||AUD||Construction Work Done (2Q)||-0.3%||1.0%||-1.9%|
|6:00||EUR||German Import Price Index (MoM) (JUL)||0.3% (A)||-0.8%||Low|
|6:00||EUR||German Import Price Index (YoY) (JUL)||-2.6% (A)||-2.2%||Low|
|6:00||CHF||UBS Consumption Indicator (JUL)||1.41 (A)||1.41||Low|
|6:00||EUR||German GfK Consumer Confidence Survey (SEP)||6.9 (A)||7.0||Low|
|8:00||EUR||Euro-Zone M3 s.a. (YoY) (JUL)||2.2% (A)||2.4%||Low|
|8:00||EUR||Euro-Zone M3 s.a. (3M) (JUL)||2.5% (A)||2.8%||Low|
|10:00||GBP||CBI Reported Sales (AUG)||20||17||Low|
|13:45||GBP||BOE Governor Carney Delivers Policy Speech||–||–||High|
|CCY||SUPP 3||SUPP 2||SUPP 1||Pivot Point||RES 1||RES 2||RES 3|
— Written by Ilya Spivak, Currency Strategist for Dailyfx.com