Talking Points
- Pound to Rise Against Euro, Yen if BOE Minuets Show Dovish Camp Shrank
- Dollar May Rise Alongside Stocks as US Existing Home Sales Hit 22-Month High
- Minneapolis Fed’s Kocherlakota Says Stimulus Unwind May Come in 2012-13
Minutes from the March meeting of the Bank of England headline the economic calendar in European hours. The outcome may prove narrowly supportive for the British Pound in that the ultra-dovish voting pattern seen in February is unlikely to be repeated this time around. While it wasn’t surprising to see perennial dove Adam Posen vote for an increase in asset purchases, the addition of David Miles to calls for more stimulus was significant. This produced a 7-2 tally in favor of the status quo but planted expectations of an apparently growing pro-QE insurgency.
In March, Mr Posen may have found himself alone once more as UK economic data broadly performed at its best since May 2010 relative to expectations. If the vote count is revealed at 7-1 or even the unlikely 7-0, traders are likely to reduce bets on further QE over the near term and offer Sterling a boost, with outsized gains expected against the Euro and Japanese Yen (where monetary policy is likely to be least supportive over the coming months). The updated UK Budget is also set to be presented to Parliament. A smaller deficit is likely to reduce bond issuance expectations and lift Gilt yields, encouraging the Pound higher in the process, and vice versa.
On the sentiment front, S&P 500 stock index futures are pushing firmly higher, hinting risk appetite is likely to be well-supported heading into the opening bell on Wall Street as traders await US Existing Home Sales figures, where forecasts point to the highest reading in 22 months at 4.61 million. What this means for the US Dollar is no longer as clear-cut as it has been even recently however. Indeed, as we
