Forex: Pound Looks to BOE Testimony for Direction, US Dollar at Risk

DailyFX

Talking Points:

  • British Pound May Fall on Dovish Lean in BOE Officials’ Testimony
  • US Dollar Fell in Asia as Soft Economic Data Dented QE Taper Bets
  • November’s US Consumer Confidence Report May Be Disappointing

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The European economic calendar is all but bare, with the spotlight on the direction of Bank of England monetary policy as top officials from Threadneedle Street sit for questioning by Parliament’s Treasury Committee. Governor Mark Carney, Deputy Governor Charlie Bean, Chief Economist Spencer Dale and MPC member Ben Broadbent are all due to testify. BOE officials’ tone was decidedly upbeat in the last Quarterly Inflation Report published earlier this month. With that in mind, they are likely to be grilled on the updated timeline for hitting the “knockout” thresholds within their forward guidance framework, particularly from the perspective of a possibly premature move away from an accommodative posture.

Carney and company are unlikely to unveil anything previously unknown to investors. Still, their comments may weigh on the British Pound if they are cornered into putting particular emphasis on the idea that hitting any of the “knockout” barriers would not automatically trigger tightening. A similar result might materialize if policymakers are pushed into forcefully restating their openness to expanding stimulus if need-be after the benchmark year-on-year inflation rate dropped to an 11-month low at 2.2 percent in October.

The US Dollar came under pressure in overnight trade, trading lower against all of its top counterparts as Treasury bond futures rose after yesterday’s disappointing economic news-flow weighed against bets on a relatively sooner move to “taper” the size of the Federal Reserve’s QE3 asset purchases. Pending Home Sales unexpectedly fell for a fifth consecutive month in October while the Dallas Fed’s Manufacturing Activity gauge dropped to the lowest in 6 months.

FOMC policy expectations remain in focus in the hours ahead, with the spotlight on November’s Consumer Confidence print. Economists have penciled in a rebound after the gauge hit a six-month low in October. An analogous measure from the University of Michigan showed sentiment soured – hitting the lowest level since December 2011 – over the same period. That opens the door for a downside surprise, an outcome that may further push against bets on a near-term cutback in Fed stimulus and weighing on the greenback (a scenario that seems to have a degree of support from technical positioning).

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Corporate Service Price (YoY) (OCT)

0.8%

0.9%

0.7%

23:50

JPY

Bank of Japan Oct. 31 Meeting Minutes

-

-

-

5:00

JPY

Small Business Confidence (NOV)

51.1

-

50.8

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

10:00

GBP

BOE’s Carney, Bean, Dale & Broadbent Testify

-

-

Medium

12:30

EUR

ECB’s Mersch Speaks in Frankfurt

-

-

Low

Critical Levels:

CCY

SUPP 3

SUPP 2

SUPP 1

Pivot Point

RES 1

RES 2

RES 3

EURUSD

1.3382

1.3452

1.3484

1.3522

1.3554

1.3592

1.3662

GBPUSD

1.5964

1.6070

1.6112

1.6176

1.6218

1.6282

1.6388

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

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