Pound May Shrug as US Dollar Gains on CPI Data, Euro at Risk

TALKING POINTS – CPI, POUND, US DOLLAR, EURO, SPAIN, BOND AUCTIO

• UK inflation data unlikely to see strong response from British Pound

• US Dollar might be sent higher as CPI data brightens Fed policy bet

• Euro may fall on Spain budget vote, soft IP data and bond sale result

UK CPI data headlines the economic calendar in European trading hours. The headline inflation rate is expected to tick down to 1.9 percent on-year, the lowest level since January 2017. A soft results impact on the British Pound may be relatively limited however considering near-term BOE rate hike chances already appear negligible ahead of the March 29 Brexit deadline.

US DOLLAR MAY RISE IF CPI DATA TOPS FORECAST

Analogous US CPI figures enters the spotlight later in the day. Here, the on-year price growth rate is seen cooling from 1.9 to 1.5 percent, marking the weakest reading since September 2016. US news-flow has palpably improved relative to forecasts recently, opening the door for an upside surprise. Leading PMI survey data bolsters the case for such an outcome.

An upbeat result might encourage priced-in Fed policy expectations to shift to a less-dovish setting. In fact, that process is already underway. Traders still lean against a rate hike in 2019 but the outlook now implied in Fed Funds futures puts the probability of one at the highest in a week. A higher CPI print may help this process along, boosting the US Dollar along the way.

EURO AT RISK ON INDUSTRIAL PRODUCTION DATA, BOND AUCTIONS, SPAI

The Euro may succumb to renewed selling pressure following yesterday‘s spirited recovery. Spain might trigger a snap election if the minority government of Prime Minister Pedro Sanchez comes up short in a budget vote due today. Meanwhile, soft Eurozone industrial production data and the results of bond auctions in Italy and Germany may sour investors’ appetite for EUR-denominated assets.

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** All times listed in GMT. See the full economic calendar here.