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China surprises by keeping LPR unchanged

Good morning

The main market news is that China left its LPR rate unchanged at the PBoC meeting overnight. A rate cut was widely expected, particularly after the RRR cut last week. Some thinking that China, despite probably needing to loosen monetary policy a little, do not want to be seen as one of the few central banks to be cutting rates while all those around them are raising rates. USDCNY did move higher, and has traded above 6.4100 up from 6.3650 or so at the start of the week, while the official fixing came in at 6.3996. I doubt China will mind steady CNY depreciation but they will not like to see sharp declines.

The other dovish central bank is BoJ and I see USDJPY traded up to 129.40 overnight before falling back quite sharply to low 128s. It has now recovered to 128.60. EURJPY tracked the move hitting 139.70 before falling back to 138.60, now at 139.10. The Yen strength overnight looked very much like intervention, I think BoJ and MoF officials have been using stronger phrases to talk JPY up and it is fair to assume 130.00 is currently viewed as a step too far. Talk that Yellen and her Japanese counterpart could meet also spooked yen sellers, the fear of coordinated action taking the shine off short yen positions for a while.

The US dollar lost a little ground against other majors, despite Feds Evans continuing with the hawkish theme, saying he expects the Fed to raise rates above neutral and believes the US economy can withstand rates at those levels. On a slightly less hawkish note, Bostic said a 75bps rise is not on his radar.

In Europe, eyes on the live televised French election debate today, coming just a few days before the election on 24th April. The TV debate could be crucial for Macron to persuade voters to turn up on Sunday, it is still expected Macron will win but there is a danger of a narrower margin of victory. A Le Pen victory would likely be EUR negative, may be some sense for EUR longs to consider a short term, cheap downside EURUSD hedge, but I must say I have seen a couple of decent banks starting to turn bullish on EURUSD, looking for 1.10-1.12 in the medium term. EURUSD currently 1.0810, up from levels his time yesterday.

For GBP, well it had looked for a while that GBP:USD could push higher but it could only reach as far as 1.3040 before tailing off, indeed it has tested that 1.3040 area a few times since the start of the week and has failed each time. The pair trades 1.3000 as I type, with EURGBP 0.8315 (GBPEUR 1.2025). Eyes on Boris Johnson and his attempts to gloss over ‘partygate’, like it or not there are bigger issues going on right now.

- 10.00 EU industrial production, trade balance

- 13.30 CAD CPI

- 15.00 US existing home sales

- 19.00 US Fed Beige book

- 23.45 NZ CPI

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