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Economic Outlook

Currency market event risk is due to pick up quite a bit over the next 24 hours, especially for the British pound and US dollar. Here are the key indicators we think you should be keeping an eye on:

Asian Trading Session
11/18, 16:45 ET
New Zealand Producer Prices (3Q) - While most central banks have cited lessening inflation pressures in the global economy, the release of New Zealand producer input and output prices for the third quarter are likely to rise as commodity prices didn't start to fall dramatically until the tail end of the quarter. During the second quarter, input prices rocketed 5.6 percent, the fastest pace since 1980, while output prices rose by the most since 1985 at a rate of 3.5 percent. If the New Zealand producer price figures hold close to these robust levels, the New Zealand dollar could gain, as Reserve Bank of New Zealand Governor Alan Bollard has suggested in the past that further rate cuts would depend on confirmation that inflation was cooling dramatically. On the other hand, a clear slowdown in producer price growth could weigh on the New Zealand dollar.

European Trading Session
11/19, 4:30 ET
Bank of England Meeting Minutes from November - The Bank of England’s meeting minutes tend to be a huge market-mover for the British pound upon release at 4:30 ET, and this time is unlikely to be any different. During the November meeting, the BOE’s Monetary Policy Committee unexpectedly slashed the Bank Rate by a whopping 150bps to a 53-year low of 3.00 percent. This came on the tails of the BOE’s participation in the October 8 coordinated rate cuts, during which they reduced the Bank Rate by 50bps. The key to trading this release will be to gauge the vote count, as indications that the decision to cut rates was unanimous could lead the British pound to pull back sharply. The moves may only be exacerbated if the MPC’s discussion sounds dovish or notes deflation risks, as the markets will shift to price in more aggressive rate cuts going forward.

US Trading Session
11/19, 8:30 ET
US Consumer Price Index (OCT) - The US Consumer Price Index is anticipated to have plunged 0.8 percent during the month of October, which would mark the sharpest drop since 1949, while the annual measure is projected to slip to a 5-month low of 4.1 percent. Like the release of the US Producer Price Index on Tuesday, the headline readings should be weighed down by volatile food and energy prices given the plunge in commodities since the summer. However, if the core readings that exclude these factors fail to fall as well, there may be an increase in concerns that the Federal Reserve will not move forward with additional rate cuts in December.

11/19, 14:00 ET
Minutes of October 28-29 FOMC Meeting -The release of the minutes from the Federal Open Market Committee's October meeting could garner even more attention than the US CPI figures in the morning, as they will give clearer insight into the Fed's bias going forward. The thing to watch with the minutes is to see how much the FOMC focuses on downside risks to growth and declining inflation expectations. Since risk trends have been the primary driver of price action lately, it will likely be best to watch for the stock market’s reaction as a pessimistic turn in sentiment could lead equities lower, and thus lead the US dollar higher given their negative correlation.

Terri Belkas
Currency Strategist
Forex Capital Markets LLC

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