BoJ in hawkish hold as intervention risks grow ahead of Golden Week

Good morning

A quiet day in the currency markets yesterday, not a massive surprise given the lack of economic data on the calendar and no tangible news from the Middle East other than the US is not overly impressed with Iran’s peace proposal and there doesn’t seem much chance of any agreement for now which has seen oil prices tick higher once again.   GBPUSD pushed up to the 1.3575 area, EURUSD managed a peak of 1.1755 and USDJPY sat in pretty much a twenty pip range around 159.20 for most of the day, although it did start ticking higher after the London close into the BoJ announcement.  Equities were mixed, lacking a bit of direction although US markets remain at or near record highs.

Overnight we had the BoJ rate announcement, they left rates unchanged at 0.75% as had been widely expected but there was a more hawkish split in the voting pattern which saw three members vote for a 25bps rise, up from just one member last time.  Inflation forecasts were revised higher, growth forecasts revised lower.  This, and a reminder from Japan FinMin Katayama that they are ready to intervene if necessary, pushed Yen a touch higher, with USDJPY dipping briefly below 159.00.  Japan’s Golden Week begins tomorrow which could bring reduced liquidity well into next week. 

As I type we are seeing some of the recent USD weakness waning, with GBPUSD and EURUSD down to 1.3510 and 1.1695 respectively, while USDJPY has pushed back toward 159.40.  GBPEUR remains in the mid-1.15’s.  Worth noting as well UK bond yields are back to their highest level for a month. AUD remains near the highs against NZD, just short of 1.2200, as RBA continue to sound on a more hawkish setting than RBNZ who are really likely to keep rates unchanged through mush of 2026.

We are awaiting rate announcements from Fed, ECB, BoE and BoC this week.  While all are expected to keep rates unchanged, the question will be how hawkish their tone is given the inflation emanating from the Middle East crisis.  I have said before that I cannot see how a rate rise would help in any way given the inflation is forced by energy pricing rather than strong demand, I am yet to hear from anyone who disagrees.

In other news, MPs will vote today to decide whether UK PM Starmer should be investigated over the Mandelson debacle amid claims he misled parliament.  I presume the opposition will vote against Starmer, the question really is whether his own party choose to do so as well.  Meanwhile, an article in The Times says Rachel Reeves is being urged by the Lords Economic Affairs Committee to build up a multi-billion pound financial buffer over concerns the UK is close to breaching fiscal rules.   This comes as Canada announce a CAD25bn sovereign wealth fund, something Norway did several years ago and the UK probably could and should have done.

In sport, Man Utd gave their Champions League hopes for next season a boost as they beat Brentford 2-1, what a run of form they have had since Carrick took over as manager.  They aren’t going to catch Arsenal but this win puts a Champions League spot almost a dead cert.  In other news, I see Anthony Joshua has signed a deal to fight Tyson Fury although the date isn’t confirmed.  Joshua has a fight before this in July, his first since his car crash in which two of his team unfortunately passed away. 

I failed yesterday to mention the amazing feat we saw in the London Marathon at the weekend where not only the winner but second place as well broke the 2 hour mark for the long distance race.  I would imagine any regular member of the public would struggle to keep up with that pace for 26 metres let alone 26 miles.  Really something incredible, but I would not be surprised to see now that barrier has been broken it will become a more common event. 

Another fairly limited economic calendar today, ECBs Lagarde speaks later this evening ahead of the ECB rate meeting on Thursday.  Aussie inflation could be of interest overnight.  Things liven up tomorrow with EU inflation in the morning, BoC rate announcement in the afternoon and then the Fed rate announcement in the early evening. 

Have a great day…

-  13.15 US ADP employment 4 week average

-  14.00 US house price index

-  15.00 US consumer confidence

-  18.30 ECBs Lagarde speaks

-  02.30 AUS CPI