British Pound Outlook is Shaky Ahead of UK Q3 GDP, BOE Meeting Minutes

The British pound may face the most event risk compared to the rest of the majors, as the minutes from the Bank of England’s October meeting along with Q3 GDP results for the UK have the impact to stoke heavy volatility in the currency.

The British pound may face the most event risk compared to the rest of the majors, as the minutes from the Bank of England’s October meeting along with Q3 GDP results for the UK have the impact to stoke heavy volatility in the currency. Not to be forgotten, though, the Bank of Canada will announce their latest rate decision while the US will see a few housing-related indicators. 

•    US Housing Starts, Building Permits (SEP) – October 20, 8:30 ET
US housing starts and building permits are projected to have risen for the second straight month in September to 10-month highs, with starts anticipated to hit 610,000 from 598,000 while permits may rise to 590,000 from 580,000. While the unemployment rate is still in the process of rising, the federal government’s tax credit for first-time home buyers of up to $8,000 is likely to remain supportive of demand through the end of the year. However, if the program expires as planned on December 1, the growth we’ve started to see in the housing sector could start to wane.

•    Bank of Canada Rate Decision – October 20, 9:00 ET
The Canadian dollar could see a pickup in volatility on Thursday at 9:00 ET as the Bank of Canada is expected to leave rates unchanged at 0.25 percent once again. After the Bank left rates unchanged on September 10, they said that they would maintain a neutral stance through June 2010, and the rest of the statement was relatively optimistic as the Bank said “GDP growth in the second half of 2009 could be stronger than…projected in July.” However, they also indicated that the Canadian dollar’s strength remained a threat to not only growth, but the return of inflation back to target. Overall, indications that the Bank still sees downside risks for inflation could weigh on the Canadian dollar, but as we’ve seen in the past, the currency is more responsive to changes in the economic outlook.

•    Bank of England Meeting Minutes – October 21, 4:30 ET
The minutes from the BOE’s October meeting will be released on Wednesday, and while we already that they left rates unchanged at 0.50 percent and made no changes to their quantitative easing program, there are a variety of potential comments that could impact the British pound. First, the vote count is likely to show the Monetary Policy Committee (MPC) members were unanimously in favor of neutral policy for both the Bank Rate and the Asset Purchase Facility (APF), but any dovish deviation in this would trigger an immediate pullback in the British pound. The other possible trigger pertains to outlooks for growth and inflation, particularly upgrades or downgrades from previous forecasts, as this would lead traders to shift their expectations for interest rate decisions in 2010, with Credit Suisse overnight index swaps currently pricing in 86 basis points worth of rate hikes by the BOE over the next 12 months.

•    UK Gross Domestic Product (3Q A) – October 23, 4:30 ET
Has the UK finally started to emerge from recession? Traders will get a better official sense on Friday as the advance reading of Q3 GDP will be released. The quarterly rate is projected to rise for the first time since Q1 2008 by 0.2 percent, while the annual rate is anticipated to edge up to -4.6 percent from a record low of -5.5 percent. Overall, there are some upside risks for this report, as the purchasing managers’ index (PMI) for the services sector held above 50 in July, August, and September, indicating an expansion in activity. On the other hand, PMI for the manufacturing sector edged above 50 in July, only to drift down to 49.5 by September. All told, any positive quarterly GDP result would likely yield a very strong reaction from the British pound, but if the figure continues to signal a contraction in the UK economy, the currency could drop sharply on speculation that the BOE will have no choice but to expand their quantitative easing program later in the year.

•    US NAR Existing Home Sales (SEP) – October 23, 10:00 ET
The National Association of Realtors’ index of existing home sales is expected to have risen 5.9 percent for the month of September to an annual rate of 5.4 million, the highest in just over two years. Other factors to keep in mind are supply levels and median prices, both of which have fallen steadily to 8.5 months and $177,700, respectively. As with housing starts and building permits, the federal government’s tax credit for first-time home buyers of up to $8,000 is likely to remain supportive of demand through the end of the year. However, if the program expires as planned on December 1, the growth we’ve started to see in the housing sector could start to wane.


See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

Send questions or comments to tbelkas@dailyfx.com