Data tests loom for Fed, BoE By Reuters

A look at the day ahead in European and global markets from Kevin Buckland

This week and this month once again show that data is king, with investors looking to recent economic releases for clues about the likely pace of interest rate cuts at the Federal Reserve and the Bank of England.

Potential flashpoints for political expectations loom for currency markets on Thursday when US retail sales and UK GDP are due to be released. The dollar and pound could move sharply in either direction depending on the results.

Soft US inflation readings this week cemented market certainty that the Fed will cut borrowing costs in September for the first time in 4 1/2 years, but the debate still unfolds over whether policymakers will opt for a super-sized 50 basis points . discount or a more standard cut of a quarter point.

Minds can change quickly, though. The estimated chance of a 50bp cut fell to 36%, down from 50% just a day earlier, after the soft but potentially sticky CPI. It had surged to 71 percent earlier this month, when surprisingly weak U.S. payrolls data rattled global markets across all asset classes.

Today, it’s retail sales — a key indicator given that consumption accounts for about two-thirds of US economic growth.

We’ll also hear from several regional Fed officials, with the head of St. Louis Alberto Musalem and Philly Chief Patrick Harker on the speaker list.

The dollar fell overnight against the euro to its lowest level since late last year. Sterling was even weaker, down about 0.5% against Europe’s common currency.

The culprit was a softer-than-expected reading in UK consumer inflation, fueling speculation of faster and deeper BdE rate cuts.

Later in the day are GDP estimates and a parade of other data, including industrial production.

Traders are divided on the chances of another rate cut by the BoE in a month’s time, after it began a rate-cutting campaign earlier this month in a short-lived decision.

On the more immediate horizon, Norges Bank announces policy today, and officials are expected to delay any easing as they worry about causing further weakness in the Norwegian krone.

Key developments that could influence markets on Thursday:

– UK GDP, services, industrial output, manufacturing output

-Norges Bank’s policy decision

-US Retail Sales, Industrial Production, Initial Jobless Claims, Philly Fed Business Index

(By Kevin Buckland; Editing by Edmund Klamann)