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GBP May Rise As Inflation Data Boosts BOE Rate Hike Bets

GBP May Rise As Inflation Data Boosts BOE Rate Hike Bets

Talking Points:

  • British Pound May Rise if Upbeat CPI Data Boosts BOE Rate Hike Outlook
  • NZ Dollar Up Before Dairy Auction, Canadian Dollar Down with Crude Oil

UK CPI figures headline the economic calendar in European trading hours. The core year-on-year inflation rate is expected to edge higher to 0.9 percent. On the whole, UK economic news-flow has cautiously improved relative to consensus forecasts over recent months, opening the door for a possible upside surprise. Leading activity surveys have likewise hinted at a pickup in price pressures (albeit an uneven one). A higher-than-expected outcome may fuel a pickup in BOE interest rate hike speculation, boosting the British pound.

The New Zealand dollar outperformed in otherwise quiet overnight trade. The advance tracked a move higher in front-end bond yields, hinting an improvement in investors’ RBNZ monetary policy outlook may have been the driving catalyst. News-wires suggested the upturn may reflect pre-positioning ahead of today’s GlobalDairyTrade auction, which futures hint may see a pickup in milk powder prices. That would bode well for New Zealand economic growth, which is closely linked to dairy exports, and thereby limit scope for on-coming RBNZ interest rate cuts. Still, investors are pricing in an 86 percent probability of a 25bps reduction in the main lending rate at next month’s policy meeting.

The Canadian dollar remained under pressure as crude oil prices declined, mirroring the dynamic on display yesterday. The Bank of Canada has previously cited weaker oil prices to as a reason to cut interest rates. Indeed, the correlation between Canadian front-end bond yields – a proxy for the priced-in policy outlook – and the WTI contract is now 0.60 on 20-day percent-change studies.

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