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  • richard evans

I spoke too soon, strong US GDP and BoJ pushes USD higher, and Yen all over the place

Good morning

A bit of volatility yesterday afternoon and then overnight on the stronger than expected US GDP release and then the BoJ rate announcement. US GDP came in at 2.4% against 1.8% expected, while durable goods also smashed expectations. This sent USD marching higher though the afternoon.

Overnight USDJPY traded from 139.10 to see a wild range of 138.05 to 141.05 and guess where it has ended up? 139.10, right back where it started. BoJ left rates unchanged but made a tweak to JGB purchases that many are viewing as a change to YCC (yield curve control). Japan stocks dropped hard initially but Nikkei closed down around 0.4%, having been almost 2.5% lower at one stage. Stronger than expected Tokyo CPI numbers overnight support the idea that BoJ may look to tighten and I have seen a few downside USDJPY ideas looking for a return to the 130s. For me, it’s a matter of time. You could sell USDJPY now and you could be right eventually but if that move takes six months you’ll lose 400+ pips in forward points alone. Like most of the world, I’d expected little from BoJ so this move came as a real surprise. It had been talked about but the feeling was we’d see nothing until September.

ECB yesterday raised rates 25bps but at the press conference Lagarde said ECB were now in data-dependent mode and that the outlook had deteriorated. The central bank are open to another rate rise of 25bps in September but this hasn’t stopped EURUSD falling hard from 1.1150 to 1.0950 since the ECB announcement. EURJPY has dropped from pre-announcement levels of 156.25 to a low of 151.50, now 152.80, of course moved by BoJ.

GBP has seen similar moves against USD and JPY. GBPUSD dropped from a high yesterday of almost 1.3000 to a low of 1.2765 while GBPJPY moved lower from 181.75 to 176.35, now 178.15. In other crosses though GBP has performed better, GBPAUD now touching on 1.9300 with an eye on the highs from earlier in July near 1.9400, those were the highest levels seen since May 2020. Negative China news has adversely affected AUD, as did weaker than expected Aussie retail sales numbers. GBPNZD also higher, now 2.0850, although GBPCAD moved sharply lower yesterday from 1.7100 to 1.6900, perhaps the stronger US GDP yesterday has made people think todays Canadian GDP release could also beat expectations.

The weekend approaches but we can’t sit back and relax just yet. EU data this morning and then US PCE and Michigan survey, together with CAD GDP will likely keep us busy. In the meantime England women play Denmark this morning in the next round of the world cup, while England battle against Australia in the second day of the Ashes. Otherwise I’m watching the football transfer gossip closely to see if Spurs will sell Kane. I still think he’ll stay although with Spurs owner Joe Lewis charged with insider trading it may be Spurs feel the need to take the money.

The weather isn’t looking great over the weekend, indeed the next week or two look pretty wet and miserable. I do hope we’ll have another warm spell before the summer is over. I’m away for much of the next two weeks so if the good weather comes mid-August it’ll suit me well.

Have a great weekend, there will be a report Monday but that’ll be it for a couple of weeks. Gives your inboxes a bit of a rest…..

- 09.00 German GDP

- 10.00 EU consumer confidence

- 13.00 German HICP, CPI

- 13.30 US Core PCE, personal income/spending

- 13.30 CAD GDP

- 15.00 US Michigan sentiment survey

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