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Talking Points:

• British Pound gains before contentious “Brexit”-themed BOE testimony

• New Zealand Dollar, bond yields decline on RBNZ rate cut speculation

• Aussie Dollar swoons as RBA Governor Stevens defends inflation target

The British Pound outperformed in overnight trade, rising against all of its top counterparts. The move may reflect pre-positioning ahead of upcoming Parliamentary testimony from key Bank of England officials. Governor Mark Carney, Deputy Governor Ben Broadbent as well as MPC members Marin Weale and Gertjan Vlieghe will be questioned about the central bank’s latest quarterly Inflation Report before the Treasury Select Committee.

Needless to say, policymakers’ harsh assessment of what may happen in the event that voters opt for “Brexit”in a referendum to be held on June 23 – taking the UK out of the EU – is likely to be in focus. Eurosceptic MPs will almost certainly accuse the central bank of partisan meddling in political matters. MPs backing the government’s position favoring the status quo will probably try to set up opportunities for Carney and company to play up doom and gloom Brexit scenarios.

On balance, the BOE position is already well-known. The central bank has shrewdly opted against wading into the hypothetical debate about the costs and benefits of EU membership over the long term. Instead, policymakers have focused on the mostly negative growth and market stability implications of triggering an unprecedented series of tectonic changes to UK economic structure. Traders may interpret their ability to toe this line convincingly as playing into the hands of the “Remain” campaign, sending Sterling higher.

The New Zealand Dollar proved weakest among the majors in Asian hours. The currency fell alongside the island nation’s front-end bond yields, hinting at swelling RBNZ rate cut speculation as the catalyst behind the decline. Indeed, the priced-in probability of a 25bps cut at next month’s policy meeting (as implied in OIS rates) rose to 22 percent from 16 percent yesterday. The Japanese Yen corrected gently lower having soared against the majors in the preceding 24 hours.

The Australian Dollar plunged as RBA Governor Glenn Stevens appeared to imply that further easing is on the horizon. Stevens defended the existing 2-3 percent inflation target as the center-piece of the central bank’s policy and said price growth is “too low”. The markets may have interpreted commitment to the current framework as paving the way for rate cuts given economists’ forecasts for Australian inflation to average 1.6 percent this year.