- UK inflation is expected to remain on its downward trajectory.
- A further decline in UK CPI towards +2.5% will keep more QE from the BoE on hold.
- Extent of end of summer growth slowdown to be revealed with ZEW surveys today.
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EURO-ZONE ECONOMIC CALENDAR
Euro-Zone data cooled midyear but European Central Bank policymakers seem convinced that the near-term slowdown is just a natural part of the business cycle. Accordingly, as the ECB holds back on additional policy action, market observers are looking for clear signs of either a recovery that’s continuing or teetering before being sold on the Euro’s recovey.
The ZEW surveys today, particularly out of Germany, will suggest that any summer drag may be diminishing. The Current Situation component of the German ZEW survey is expected to rise to its highest level since June 2012, while the Economic Sentiment (“Expectations”) component will have held at its highest level since April 2010. Signs that the European economy is stabilizing without the additional prodding by policymakers should be considered EUR-bullish.
UK ECONOMIC CALENDAR
The stated goal of the Bank of England’s forward guidance policy is to keep interest rates low or lower until the Unemployment Rate falls to or below 7.0% over the next few years, unless of course inflation holds above +2.5% annualized through late-2015. Both of these objectives look on track, which is part of the reason why the British Pound has been so resilient since the early-2Q’13.
In line with weak labor wage growth and insulated purchasing power thanks to a stronger Sterling, UK CPI is due to fall back another one-tenth of one percent to +2.6%, the lowest rate in a year. Declining inflation figures typically lead to tighter monetary policy but in the case of the UK where inflation has been running well-above the BoE’s target for the past several years, a continued moderation of price pressures in context of a stable recovery will only further underpin a strong British Pound over the medium-term.
SWISS ECONOMIC CALENDAR
There are no data due for the Swiss Franc on Tuesday, October 15.
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--- Written by Christopher Vecchio, Currency Analyst
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