Tag Archives: Japan

Bank of Japan and Federal Reserve

The Japanese Yen dropped overnight as the Bank of Japan kept its main policy rate at -0.1% but revamped its stimulus program and left its options open for further monetary easing in the future before returning to earlier levels. USD/JPY currently trades at 101.58, CHF/JPY at 103.99, EUR/JPY at 113.22 and GBP/JPY at 132.00.

In the USA the Federal Reserve meets this evening (19:00 UK) and is likely to keep rates on hold at their current 0.25-0.50% range. However, market participants will be looking for any comments which confirm the likelihood of a rate hike(s) before year end.

EUR/USD currently trades at 1.1147, GBP/USD at 1.30 and USD/CHF at 0.9770.

Elsewhere, EUR/GBP trades at 0.8575 (GBP/EUR 1.1662).

UK Inflation Falls and Takes Pound With it

As expected this morning UK inflation figures fell, even lower than what the markets had been expecting. UK Consumer Price Index fell to 2.4%, down from 2.8% the previous month and below market expectations of 2.6%. UK Core Consumer price index was also down 40 basis points to 2.0%, recording a figure below market expectations of 2.3%. UK Producer Price Index and UK PPI Core Output were also down at 1.1% and 0.8% respectively.

In what was a rather busy morning in terms of UK data releases, nearly every piece of economic data released concerning the UK economy was negative. As would be expected Sterling fell right across the board following these inflation figures’ release. GBP/EUR fell to a daily low of 1.1777 however remained within the approximate 1.5 cent range that the pair has been trading within for the last month. Similarly Cable fell to a daily low of 1.5163, continuing the pairs decline since early May with a further test of the 1.5157 level now likely and should this break the next area of substantial support being found at 1.5127.

Much earlier this morning we saw the Japanese Yen return to its depreciating ways following Japanese Economy Minister Akira Amari’s much more coy response regarding the potential end to the Yen’s slide against the Dollar. This comes after the Yen strengthened yesterday following the economy minister’s comment that suggested further weakening of the Yen may adversely impact upon Japanese people. The bank of Japan’s record monetary stimulus program would now appear to be having the desired effect that Japanese finance ministers had initially hoped it would. Figures released in Tokyo last week showed that Japanese GDP rose to an annualized 3.5%, suggesting that the Bank of Japan’s efforts to end a decade of inflation are actually having a positive impact on the economy. This increase in money supply has had the inevitable, yet “unintentional”, effect of depreciating the Yen, which rose to above USD/JPY 100.00 two weeks ago for the first time in over four years, and has consequently lead to a boost in exports. Data released so far suggests that BoJ Governor Haruhik Kuroda may actually be able to reach his ambitious target of reaching 2.0% inflation in just two years. USD/JPY is currently trading at 102.68 and speculation will now grow as to whether the pair will reach 105.00.

With very little data due out this afternoon, trader’s attention is likely to turn to tomorrow where we will see a number of key releases. In the early hours of tomorrow morning the Bank of Japan is set to make their interest rate decision and monetary policy statement, potentially giving the market an indication of how long their extremely loose monetary policy will continue. Moving back westwards, later tomorrow morning UK BoE minutes will be released, followed by the US FOMC minutes tomorrow evening. As Sir Mervyn King comes to the end of his tenure as governor of the BoE, it is unlikely that we will see any drastic information released in the BoE minutes, however the market will be keen to see if the FOMC minutes or Fed Governor Ben Bernanke’s press conference give any indication as to when a reduction in the Federal Reserve’s bond buying program will be brought to an end.

Currency Matters

Yesterday saw substantial volatility within the markets courtesy of mixed PMI figures released in Europe and a tacit message from Mario Draghi suggesting that the European recovery will take longer than expected. Whilst the BOE’s decision to maintain interest rates and quantitative easing levels at their current level had little impact upon the markets, German and Euro Zone PMI figures falling short of expectations and Mario Draghi’s negative assessment of Europe’s recovery caused a substantial move in the euro throughout the day whilst GBP/EUR eventually closed flat at 1.1777. The dollar experienced similar levels of volatility yesterday following higher than expected US Initial Jobless Claims as GBP/USD closed near a six week high of 1.5225 and EUR/USD also closed up at 1.2926.

Despite the relatively high levels of volatility that were witnessed on both sides of the pond yesterday, the largest market movements were attributed to economic news coming out of Asia. In the early hours of yesterday morning the Bank of Japan committed to a substantial bond buying program worth over half a trillion dollars per year – the size of which took markets by surprise. Unsurprisingly however this lead to the most considerable Yen sell off that we have seen for quite some time with the Yen closing down across the board. The Yen touched a near three and a half year low yesterday against the Dollar and has now pushed above this level with USD/JPY reaching 97.15 so far this morning, whilst GBP/JPY has hit 146.67.
This morning we have seen relatively minor movements in the markets following the release of Euro Zone Retail Sales and German Factory Orders, both of which came out above expectations. Market participants are likely regrouping following yesterday’s volatile trading environment and preparing themselves for the release of the US Nonfarm Payrolls later today. Following the weaker than expected US data yesterday, another subpar performance today for the US jobs market could cause the Greenback to drop off even further, with GBP/USD potentially reach 1.53+.

On Your Marks, Get Set, Manipulate

The G20 followed a similar line over the weekend to the one that was adopted by the G7 earlier last week, as finance ministers of the world’s largest economies commented in a joint statement: “We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes”. The fact that the statement was of a rather generic nature, and importantly didn’t specifically refer to Japan, has effectively given Japan the green light to continue its unofficial policy of Yen depreciation, and has potentially opened the door for other countries to follow suit. This lead to the Yen dropping against the Dollar yet again this morning as USD/JPY hit 94.21, nearing the low it reached on February 11th of 94.46, its lowest level in over two and half years.

Some ministers have begun to comment on the potential for ‘currency wars’ in recent weeks as countries actively pursue a weaker currency. However, Japan has reaffirmed today that its monetary easing policies are specifically targeted at ending deflation rather than purposefully trying to devalue the Yen in order to improve the countries global competitiveness, though currency devaluation coincidentally will be an inevitable side effect of such policies. However leading economist, and Nobel Prize winner, Paul Krugman, notes that the currency war issue is “a misconception and it would be a very bad thing if policy makers take it seriously”, and that “the stuff that’s now being called “currency wars” is almost surely a net plus for the world economy”.

Sterling is not fairing any better this morning following the G20 meeting as GBP/EUR is currently trading at 1.1585, having slightly rebounded from a daily low of 1.1562. Similarly Cable has also rebounded from a seven month low of 1.5437 this morning and is currently trading at 1.5470. Whilst the Pounds decline has made imports more expensive over the last month, BoE Monetary Policy Committee member Martin Weale commented last week that the weakening Pound would help improve Britain’s export prospects.

It is Presidents day in the US today, a Public holiday which means trading volumes will be lower and the economic calendar if rather light. However, this afternoon ECB president Mario Draghi will be making a speech. Market participants will be keen to see whether Mr Draghi will make any reference to a potential future interest rate cut. Such a move, which could well happen within the next few months as looser monetary policies have now seemingly been tacitly warranted by the G20, would help Sterling recover some of its recent losses against the common currency.

Mark Webster

Currency Matters

Political agreement would not appear to be any closer in the US following President Obama’s State of the Union address last night. With the postponed fiscal cliff spending cut discussions due to re-emerge in the forthcoming weeks, markets will be hoping bipartisan agreement is easier to come by than it was in the run up to the new year deadline. Last night President Obama offered little in terms of initiatives that are likely to do much to help increase US growth, such as minimum wage increases and climate initiatives. However, when it came to deficit reduction the president was slightly more emphatic, stressing that whilst it is important; “deficit reduction alone is not an economic plan”. It would appear that the theme of political impasse is due to continue as discussions regarding spending cuts and tax hikes loom closer.

Elsewhere yesterday we saw confusion in the markets following contradictory statements released by the G7. Initially indicating that it was unconcerned with recent worries regarding the weakening Japanese Yen, the statement from the G7 seemingly appeared to accept Japans latest fiscal policy manoeuvring as a domestic issue. However this stance was contradicted soon after the initial statement was released, when a G7 official clarified the situation, expressing that the G7 was in fact concerned with Japans monetary policy and the statement had been directed at Tokyo. This led to a wide trading range yesterday for USD/JPY, as the pair bounced between 94.40 – 92.94. We may well see fluctuations in the Yen continue tomorrow as the Bank of Japan is due to release its interest rate decision and monetary policy statement in the morning.

Unsurprisingly Sterling is down against the Euro and the Dollar yet again this morning. After falling over night and during the early hours of this morning, BoE Governor Mervyn King’s speech following the Bank of England’s Quarterly Inflation Report offered no assistance in halting the decline. Despite Governor King insisting the UK economy was set to recover, his comments were shrouded in numerous caveats. Mainly these were that growth is going to take longer and be weaker than had originally hoped, and that inflation is likely to rise. Markets reacted negatively to the Governors speech, in which it was also disclosed that inflation is likely to remain above target as it is becoming increasingly difficult to bring CPI back to the targeted 2%. This lead to immediate downward spikes in both GBP/EUR and GBP/USD, as the pairs dropped as low as 1.1514 and 1.5533 respectively.

With little more economic data due to be released this afternoon, it’s more than likely we will see markets consolidate in preparation for tomorrow. GDP figures are due out across Europe tomorrow morning, with the majority of market focus being heavily placed on German and EU figures. Should these figures fall short of market expectations, this could well be a catalyst for Sterling to begin recovering some of its recent losses.

Mark Webster

Currency War

It would appear that the world is on the brink of war. Currency war that is. According to the Russian central bank we are anyway. The comments come following Japans recent commitment to devalue its currency by increasing monetary easing within the country, in an effort to increase the country’s global competitiveness. Whilst at first sight the comments from Russia may seem alarmist, they raise a good point. If Japan is going to commit themselves to a policy of currency devaluation, it would appear inevitable that other countries will follow suit.

This follows comments made yesterday by Luxembourg Prime Minister Jean-Claude Juncker, who described the Euro as “Dangerously High”. This sparked a Euro sell off which led to EUR/USD dropping off to 1.3261 this morning after reaching a high of 1.3403 on Monday, its highest point since February 2012. Similarly the Euro weakened against Sterling as GBP/EUR reached 1.2097 this morning. This followed the pairs fall to 1.2011 yesterday, which was its lowest point in nine months, as the Euro had continued to strengthen on the back of ECB President Mario Draghi’s press conference last Thursday.

Cable finally broke below 1.6030 this morning after having been held at that level for the previous two days. The pair went on to hit 1.6003, testing a key Fibonacci level at 1.6010, before rebounding back to 1.6030+. The pair is again currently trading on the six month upward trend line after having briefly broken through this late last week. Continued downward pressure on Sterling following the World Bank growth rate downgrade and David Cameron’s persistent attempt to renegotiate Britain’s EU membership could see Cable fall back to 1.5911.

EU economic data released this morning showed Consumer Price Index figures for the region remained constant at 2.2% for December, as had been expected. We may well see further movement in the Dollar this afternoon as CPI figures are released at 13:30 in the US, along with US Industrial Production at 14:15 and the Fed’s Beige book at 14:15.

Mark Webster

Euro Appreciates

The Euro has continued to appreciate following Thursday’s European Central Bank press conference where ECB President Mario Draghi failed to meet market expectations by not hinting at a rate cut in the coming months.

GBP/EUR is currently trading at 1.2070, a key level of support, after having broken through 1.2168 on Friday, a level which had held for the previous nine months. Todays’ weakening continues a seven day trend for Sterling, as Britain’s position within Europe becomes more and more ambiguous. David Cameron’s attempt to tread a fine line between Conservative Eurosceptic’s and pro-European business leaders is proving difficult and his bid to negotiate a reduction in powers held by Brussels over Britain, whilst maintaining the UKs membership, would appear impossible. Any concrete signs of a full withdrawal of the UK from the EU could prove very negative for Britain and would likely stifle economic growth for the country. Leaders from across Europe and even the US have warned Britain of the damaging effects such a move could have, and the markets would appear to be making their feelings clear too as the Pound continues to weaken.

Elsewhere in the world today, the Yen has continued to weaken as newly elected Japanese Prime Minister Shinzo Abe, looks set to elect a central bank chief who will continue to expand monetary easing in the country. In a further attempt to increase the countries competitiveness internationally, it is hoped that weakening the country’s currency will help drag Japan out of decades of economic stagnation.

EUR/USD broke above a key Fibonacci level of on Thursday and has continued its appreciation since. The pair is currently trading at 1.3368 and should the Euro continue to strengthen the next price level we are likely to see will be at 1.3487, however should momentum dissipate the pair may well fall back to 1.3143.

Cable is currently trading at 1.6124, a significant price level that has been mentioned in previous blogs. We are likely to see the pair trade between 1.6010 and 1.6309 until a consistent break is made either side of this channel. We may have to wait until next month until we actually see this though, when the effects of the delayed fiscal cliff remerge in Washington and US politicians once again commence battle, this time over government spending.

Please find a summary of this week’s economic calendar below:

14.01.13
10:00 EU Industrial Production
15:30 Bank of Canada Business Outlook Survey
21:00 US Fed’s Bernanke Speech

15.01.13
01:00 UK RICS Housing Price Balance
07:00 German Consumer Price Index
08:00 German Gross Domestic Product
09:30 UK Consumer Price Index
09:30 UK Producer Price Index
09:30 UK Retail Price Index
13:30 US Producer Price Index
13:30 US Retail Sales

16.01.13
10:00 EU Consumer Price Index
13:30 US Producer Price Index
14:15 US Industrial Production
19:00 US Fed’s Beige Book

17.01.13
00:30 Australian Unemployment Rate
09:00 ECB Monthly Report
13:30 US Housing Starts
13:30 Building Permits
13:30 US Initial Jobless Claims

18.01.13
02:00 Chinese GDP
02:00 Chinese Industrial Production
02:00 Chinese Retail Sales
09:30 UK Retail Sales
14:55 Reuters/Michigan Consumer Sentiment

Decisions, Decisions, Decisions

Markets are relatively flat this morning as participants wait and see what will be the outcome of two major pieces of economic data due out this afternoon. First we will see the Bank of England release its decision at 12:00 GMT on whether or not to alter interest rates or their asset purchase program. Whilst both of these are expected to remain as they are, market participants look keen to wait until these decisions are confirmed before taking a position within the markets.

A little later this afternoon we will see an ECB Monetary Policy Statement and press conference at 13:30 GMT. As in the UK, the ECB are expected to keep interest rates on hold at their record low of 0.75%. Whilst the Eurozone appears to have been stabilizing recently, there has however been no spectacular data release to suggest that a rate change at present would be warranted.

Elsewhere today we have seen commodity currencies react favourably to the positive data released in China this morning. Figures show that the Chinese Trade Balance rose substantially in December, reaching 31.6B for the month, well above market expectations of 19.7B. The Australian Dollar rose to its highest point against the Japanese Yen in four years following the data release, and is currently trading at AUD/JPY 93.23. The Aussie Dollar was also aided by Japanese Prime Minister Shinzo Abe, who has called for the Bank of Japan to raise inflation targets to 2%, weakening the Yen right across the board.

Mark Webster

Interest Rates

Today (07/04/11) as expected the European Central Bank (ECB) has raised its benchmark interest rate by 0.25% to 1.25%, the first such increase since July 2008. The Bank of England has kept interest rates on hold for the 25th month at their historic low of 0.5% and the Bank’s Quantitative Easing Asset Purchase Programme remains at £200bn.

 The focus will now shift to the release of the minutes (due 20th April) of today’s BoE Monetary Policy Committee (MPC) meeting to see if any further MPC members have been swayed to the rate hike camp. At the previous meeting in March, six members voted to keep rates on hold whilst three members voted for an increase in interest rates. The conflict between above target inflation coupled with weak economic growth making the Bank’s decision difficult. The market will also seek further clarity on the future direction of ECB interest rates as there had been some suggestions that the hike today may be the first of a gradual increase in ECB interest rates.

Typically, as a central bank increases interest rates their currency will appreciate as global investors seek a higher yielding currency. The widening interest rate differential between the BoE and ECB has been a major contributing factor to Sterling’s relative weakness against the Euro despite the ongoing European sovereign debt crisis.

Comparative World Interest Rates

Bank of Japan: 0.1%

Federal Reserve (USA): 0.25%

Swiss National Bank: 0.25%

Bank of England: 0.5%

Bank of Canada: 1%

European Central Bank: 1.25%

The Reserve Bank of Australia: 4.75%

People’s Bank of China: 6.06%

Brazil: 11.75%

Currency Update

The US Dollar remains under pressure as gold soars past $1,130 an ounce. EURUSD climbed as high as 1.4993 and has now settled around 1.4970. The Pound has also had a good day against the US Dollar hitting an interbank high of 1.6780 so far. The markets will now be eyeing Fed Chairman Ben Bernanke’s speech due later today at 17:15.

Over the weekend GDP figures released from Japan smashed market expectations posting third quarter growth at 4.8%. Of course this can largely be attributed to the massive government stimulus package so it is unlikely that these levels of growth will be sustainable.

Sterling will face a number of tests this week as the Bank of England’s Quantitative Easing Programme will take the limelight again. UK inflation data is due tomorrow (17/11) morning at 09:30 whilst the Bank of England Minutes from November’s Monetary Policy Committee (MPC) meeting will be released at 09:30 on Wednesday 18th November.