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  • richard evans

BoJ finally move away from negative rates, but Yen still weakens

Good morning

 

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place last weekend. 

 

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

 

This will be until Sunday 31st when we change our clocks in the UK.

 

 

We witnessed a pretty historic event overnight as BoJ did indeed raise rates for the first time in seventeen years, taking them away from zero interest rates.  OK, so we’re not talking a huge move, a mere 0.1% increase, but it’s a start.  BoJ will continue to purchase JGBs, perhaps that’s the next step on the way to more normal monetary policy.  Yen has actually weakened post the announcement, USDJPY is now at 150.35 and GBPJPY up at 191.00, the fact the bond purchases are ongoing is a likely reason, plus a cautious assessment of the economy by BoJ with downgrades of production and consumption forecasts.  It seems likely that BoJ will keep rates at these levels for a considerable time.

 

The general USD buying against Yen seems to have spilled over into the other majors, GBPUSD is now trading down at two week lows around 1.2700 and EURUSD at 1.0850, which puts GBPEUR at 1.1700.

 

RBA left rates unchanged at 4.35% overnight, but a slightly less hawkish tone from them has seen AUD weaken, with GBPAUD up to 1.9500 and  AUDUSD down to 0.6510.  The took the phrase ‘a further rise in interest rates cannot be ruled out’ out of the statement and RBAs Bullock said that although inflation is above target, consumption is slowing and labour market conditions are easing, quite a change from last months meeting and yet another sign of just how difficult it is for central banks to gauge the economic situation at present.

 

ECB officials continue to err on the dovish side, with Centeno yesterday saying the economy is stagnant and that lower rates may help prevent a recession.  ECBs de Guindos said they see a clear disinflationary process, a decrease in the rate of inflation , and said by June they will have more information with which to decide when to cut rates.  De Guindos added that ECB move independently of Fed.   

 

Today sees Canadian inflation numbers.  USDCAD is up at 1.3575, helped as well by the general bout of USD buying post-BoJ, now heading towards the highs since mid-December and any weak reading could extend that CAD weakness.  Watch the 1.3600-1.3615 area.

 

We also have some housing data from the US.  I don’t usually watch this too closely but last month’s data was pretty poor and recent housing data has shown signs of improvement.  It is possible the last reading was adversely affected by bad weather, so it will be interesting to see the scale of any rebound.

 

Early tomorrow morning we will have the latest UK inflation release, then later tomorrow we will have the FOMC rate announcement, so could make for an interesting

Day.  UK inflation surprised to the downside last time out, it would be good if it can at least show signs of holding rather than rising although there are some concerns that the higher minimum wage could start impacting inflation at some point.  It would take something for BoE to do anything other than keep rates unchanged on Thursday.

 

We have had more than our fair share of bad news, wars and pandemics over recent years.  To add to our woes, I have been reading that the price of cocoa has been pushing higher.  In January it was down around $4,000, it is now above $8,000.  The impact on chocolate prices cannot be far away so chocoholics should consider stocking up.  The key question is Dairy Milk or Galaxy.  Can’t say I’m fussed, but I’m never averse to having both, purely for comparative purposes of course.   

 

Have a great day, I’m actually up in London for a lunch today which is always a treat, but of course we remain available for anything you require from the world of currencies.

 

-  10.00 German ZEW

-  12.30 CAD CPI

-  12.30 US housing starts

-  20.00 NZ Westpac consumer sentiment

-  01.15 PBoC rate announcement

-  07.00 UK CPI, PPI, RPI

-  07.00 German PPI

 

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