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Ueda sends Yen higher with suggestions of policy tightening

Good morning

Quite a bit to get through and I’m running late having had to drop my car off at the garage for a rather expensive looking suspension issue, Typical, I’d been preparing to replace it after the widening of the ULEZ scheme to all London boroughs, and I’ll end up being faced with a big bill before I can rid myself of it.

There are two main pieces of news for the currency markets this morning. First up, BoJs Ueda suggesting in an interview published over the weekend that they may have enough information by year-end to think of tightening monetary policy. This is likely to mean fiscal year end, so out to March 2024, but the idea that Japan could move away from negative rates has helped push Yen higher, with USDJPY trading down from a 147.80 close to 145.95 so far. I would actually have through that it would move further on the news but perhaps the market is wary of both the time we may still need to wait and the possibility that Ueda is just doing his best to give the Yen some much needed support.

The other piece of news came from Yellen who said she was confident the US would face a soft landing and that the US can contain inflation, of which every measure is already on the way down, without damaging the economy. Fed officials have been sounding more cautious with regard to rates and given the signs are inflation is a little more under control, another pause from the Fed in September looks on the cards.

This served to push USD lower, GBPUSD which had been trading down near the mid-1.24s Friday evening is now 1.2525, while EURUSD has also recovered from the high-1.06s to 1.0730 where it sits now. GBPEUR is 1.1675, up a bit from last week as the single currency struggles while it awaits the ECB rate decision on Thursday. For now, it looks as though they will keep rates on hold as well.

China are up to their usual tricks, they fixed USDCNY at 7.2148 despite the market trading in the 7.34s. Plenty of news around China, Italy told China at the G20 that they were pulling out the Belts and Roads initiative, that won’t have pleased China, while Biden called China’s economic issues a ‘crisis’, citing the domestic real estate problems and high youth unemployment, the latter being something China fails to provide numbers on but it does appear to be a major issue. Biden said he wasn;t happy to see the crisis but that it was clear some of Xi’s economic plans were just now working. He did add that the economic crisis makes an invasion of Taiwan less likely. I’m not sure that’s a sensible thing to say.

The G20 came and went, everyone seemed to be trying to schmooze India with Biden preferring to meet Modi than Sunak and EU talking of a rail link between India and Europe that will greatly speed up trade and help link up energy grids. Sunak meanwhile says he is confident UK can do a trade deal with India if the terms are right. We still give aid to India, there is some doubt as to whether this is necessary, particularly with India spending money on missions to the moon. I presume its more political than anything. I was surprised the G20 wasn’t more damning of Russia over Ukraine. If I were Ukraine I’d be pretty annoyed.

A load of sport over the weekend, England got themselves level in the cricket ODI series with New Zealand by winning on Sunday, having lost on Friday. Englands football team looked decidedly average as they eked out a draw with Ukraine, manager Southgate coming under some criticism for appearing to be far too negative against such lowly opposition. Mind you, its nothing compared to Hansi Flick who became the first German manager to be sacked since the role was cerated in 1926, following a 4-1 loss to Japan. England take on Scotland in a friendly tomorrow evening, always entertaining and not always particularly friendly!

In rugby, England came away with an impressive win despite going down to 14 men after just a few minutes. Have to say, Argentina put on a well-below par display but it will help Englands confidence after some pretty dismal performances in the warm up to the tournament. South Africa become favourites with a dominant win over Scotland, France close behind after beating the All Blacks. We now have a break for a few days.

One item of news that gripped my interest over the weekend was the discovery by researchers in the sea off the coast of Alaska of a golden orb that experts cannot identify. It has been brought to the surface but tests are still under way to work out what it actually is. Thoughts are perhaps it is an egg of an as yet unknown creature.

Today marks the 22nd anniversary of the horrific attacks in the US including those one the two world trade centre towers that claimed he lives of almost 3,000 people. Thoughts remain with all those affected by those events. It is a light calendar today, it is a US holiday (Patriots Day) but not a full public holiday so markets do remain open.

UK employment data out early tomorrow morning, US CPI numbers will be out Wednesday where I’d expect to see confirmation of slowing inflation, while ECB rate announcement Thursday will finally answer the question of whether they do keep rates on hold at 3.75%.

- 09.00 BoEs Pill speaks

- 00.00 BoEs Mann speaks

- 01.30 AUS Westpac consumer confidence

- 07.00 UK unemployment

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