Euro, Pound May Rise on Data But US CPI Dominates Spotlight

DailyFX

The Euro and the British Pound may score near-term gains on the back of economic data but investors are more concerned with US CPI and its implications for Fed policy.

Talking Points

  • British Pound May Rise as UK CPI Rise Dents BOE Stimulus Outlook
  • Euro Could Find Support as German ZEW Survey Hits 3-Month High
  • US CPI Critical as Fed Policy Bets Take Center Stage Before FOMC

May’s UK CPI data headlines the economic calendar in European trading hours. The year-on-year inflation rate is expected to edge higher to 2.6 percent having set a seven-month low at 2.4 percent in the prior month. Prices appear to be responsive to monetary policy expectations, with GBPUSD tracking the UK-US 10-year bond yield spread and the BOE/Fed balance sheet ratio. That suggests an increase that scatters near-term BOE stimulus expansion bets is likely to be supportive for the British Pound, and vice versa.

Germany’s ZEW Survey of investor confidence is likewise on tap. Economists see the forward-looking Expectations index advancing to a three-month high. The Euro seems likewise sensitive to policy expectations, meaning the single currency could enjoy a near-term lift if a firm result weighs against the case for a more accommodative ECB.

G8 leaders continue a summit in Northern Ireland today. Issues including tax evasion, global trade expansion and Japan’s latest economic policies are tipped to be on the docket. Significant policy innovations are not expected but markets will nonetheless monitor chatter from the sit-down for any relevant headlines.

Looking past shorter-term catalysts however, the critical issue in question for the financial markets at large is the outcome of this week’s FOMC policy announcement and its implications for the timing of a reduction in QE3 asset purchases. That means whatever happens in early European trade may be swiftly overshadowed by the US CPI report, where a pickup in the headline price growth rate to 1.4 percent may send the US Dollar higher as traders mull the so-called “taper”.

Capitalize on Shifts in Market Mood with the DailyFX Speculative Sentiment Index

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

1:30

AUD

RBA Releases Minutes from June Meeting

-

-

-

2:00

CNY

Actual FDI (YoY) (MAY)

0.3%

-

0.4%

2:00

CNY

Conference Board Leading Index (MAY)

261.6

-

260.8

4:30

JPY

Industrial Production (YoY) (APR F)

-3.4%

-

-2.3%

4:30

JPY

Industrial Production (MoM) (APR F)

0.9%

-

1.7%

4:30

JPY

Capacity Utilization (MoM) (APR F)

1.6%

-

-0.8%

6:00

JPY

Machine Tool Orders (YoY) (APR F)

-7.4%

-

-7.4%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

-

-

G8 Summit in N. Ireland – Day 2

-

-

High

6:00

EUR

EU 25 New Car Registrations (MAY)

-5.9% (A)

1.7%

Low

8:30

GBP

PPI Input n.s.a. (MoM) (MAY)

0.0%

-2.3%

Low

8:30

GBP

PPI Input n.s.a. (YoY) (MAY)

2.5%

-0.1%

Low

8:30

GBP

PPI Output n.s.a. (MoM) (MAY)

0.0%

-0.1%

Medium

8:30

GBP

PPI Output n.s.a. (YoY) (MAY)

1.4%

1.1%

Medium

8:30

GBP

PPI Output Core n.s.a. (MoM) (MAY)

0.1%

0.1%

Low

8:30

GBP

PPI Output Core n.s.a. (YoY) (MAY)

0.9%

0.8%

Low

8:30

GBP

CPI (MoM) (MAY)

0.1%

0.2%

High

8:30

GBP

CPI (YoY) (MAY)

2.6%

2.4%

High

8:30

GBP

Core CPI (YoY) (MAY)

2.1%

2.0%

High

8:30

GBP

RPI (MoM) (MAY)

0.2%

0.3%

Low

8:30

GBP

RPI (YoY) (MAY)

3.1%

2.9%

Low

8:30

GBP

RPI Ex Mort Int.Payments (YoY) (MAY)

3.1%

2.9%

Low

8:30

GBP

ONS House Prices (YoY) (APR)

2.5%

2.7%

Low

9:00

EUR

Euro-Zone ZEW Survey (Econ. Sentiment) (JUN)

-

27.6

Medium

9:00

EUR

German ZEW Survey (Curr. Situation) (JUN)

9.5

8.9

Medium

9:00

EUR

German ZEW Survey (Econ. Sentiment) (JUN)

38.1

36.4

High

Critical Levels:

CCY

SUPPORT

RESISTANCE

EURUSD

1.3293

1.3393

GBPUSD

1.5647

1.5755

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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