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Talking Points:

• US Dollar faces broad selling pressure before July’s inflation figures

• Euro, British Pound may overlook UK CPI and German ZEW reports

• Yen gains as Japanese stocks decline, NZ Dollar higher after bill sale

The Yen outperformed in overnight trade as Japan’s benchmark Nikkei 225 stock index declined, boosting demand for the anti-risk currency. The New Zealand Dollar rallied as auction results showed rising demand for short-term government debt compared with a sale of analogous paper two weeks ago.

The US Dollar traded broadly lower as front-end borrowing costs declined, hinting at ebbing Fed rate hike bets ahead of the upcoming release of July’s US CPI figures. The core year-on-year inflation rate is expected to remain unchanged from the prior month at 2.3 percent.

US economic news-flow has increasingly underperformed relative to consensus forecasts over recent weeks, opening the door for a downside surprise. Such a result may reduce the priced-in probability of tightening before year-end. As it stands, traders assign narrowly better-than-even odds that stimulus withdrawal will have to wait until 2017.

The UK CPI report and Germany’s ZEW survey of analyst sentiment headline the European data docket. The former is set to show the headline price growth rate held at 0.5 percent last month while the latter is projected to show a slight improvement in expectations.

On balance, neither outcome is likely to deliver a lasting response from the Euro and the British Pound considering their limited implications for near-term monetary policy trends. The ECB probably feels no need to deviate from the established trajectory after a marked improvement in financial conditions since the Brexit referendum scare. Meanwhile, the BOE is likely in wait-and-see mode after just boosting stimulus.

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