Perhaps it’s going to be as simple as watching USD/GBP to see the new risk mood towards policy as the key and the USD may show it later today, writes Bob Savage, CEO of Track Research in his Thursday commentary.

Today is about the fact that the BOE doesn’t really think all its stimulus is needed – but that they voted 7-2 to do nothing anyway.

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The British pound (GBP/USD) is doing the work for them with 1.3148-1.3337 violent reversals.

There are other places and things that aren’t needed – witness North Korea again. Risk moods flipped in Asia as North Korea threatened Japan post the new sanctions, weaker China data surprised, another poll in NZ flips to Labour opposition, while higher U.S. rates after Trump/Democrat dinner pushes tax reform and DACA deals, SNB changes Swiss franc CHF tone – but keeps negative rates - all that hurt risk assets into the Bank of England decision and U.S. CPI today.

Notable that oil prices hold near 5-week highs even as metals are sharply lower.

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The whiff of deflation in China may mean that U.S. bonds are in play next despite hopes for a U.S. tax deal as CPI may confirm an unhappy “Goldilocks” market. Bonds have the key to trading forex so far this week. The bullish outlook for European growth continued, however, even as breakeven inflation is lower after unchanged HICP reports from Germany, Spain yesterday and Italy, France today. The Italian Confidustria raised its growth outlook as did the OECD for France today.

• North Korea shifted from U.S. to Japan - “The four islands of the archipelago should be sunken into the sea by the nuclear bomb of Juche,” North Korea’s state-run news says Thursday, citing a statement by a spokesman for the Korea Asia-Pacific Peace Committee that referred to the country’s philosophy of self- reliance. “Japan is no longer needed to exist near us.” NBC also reported that mobile missile launchers are being moved by North Korea.

• The New Zealand election is just too close to call – and that means that the New Zealand dollar (NZD/USD) is going to stay volatile – with crosses to the Australian dollar (AUD/USD) and Japanese yen (JPY/USD)  in play as well. Latest Colmar Brunton poll has Labour at 44%, National at 40%, Greens at 7%, NZ first at 6% - suggesting a Green/Labour coalition.

• SNB notes that CHF is just overvalued rather than significantly overvalued. The SNB said that it "would remain active in the forex market as necessary.” Most analysts see this a more an acknowledgment of CHF needing less intervention rather than a move away from QE policy yet.

These points matter but only so far – the balancing act ahead is what really matters to the markets – policy shifts – like that suggested from the Bank of England minutes today; Growth as the China data puts into question but the OECD and others embrace; Inflation as the CPI today will clarify; or politics as the ongoing talks over tax reform in the U.S. play out with Trump, Democrats and Republicans all rushing to do something.

These are the drivers with the resurgence of the USD and now GBP clearly the result – perhaps it’s going to be as simple as watching USD/GBP to see the new risk mood towards policy as the key – euro/Swiss franc (EUR/CHF) foreshadowed that point earlier – and the USD may show it later today.

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