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Yen at lowest levels for 34+ years after BoJ meeting, as market awaits US PCE inflation number

Good morning


Well, where to start.  First, US GDP headline came in at 1.6%, the lowest reading since Q2 2022.  USD moved lower initially, but on examination there were inflationary elements in details which then pushed USD higher.  Slow growth and stronger inflation doesn’t sit too well.  Looking at GBPUSD, it was 1.2505 before the release, pushed up to 1.2525 and then down to 1.2460.  Since then however we’ve worked our way back to the 1.2505 area.  Similarly EURUSD spiked from 1.0715 to 1.0740 before dipping to 1.0680, only to be back at 1.0725 as I type.   


GBP has struggled against EUR this week although it is off the 1.1570 lows we saw Tuesday.  Now at 1.1655, it is only 20 pips from yesterdays highs but continues to  looks vulnerable, I’m watching the 1.1650 area closely.  In a slightly unusual comment, ECBs Panetta said that any Fed rate rises could make the case for ECB rate cuts more pressing.  I’m not sure how he reached that conclusion but a cut from ECB in June still looks most likely.


Slow growth and stronger inflation out of the US doesn’t make great reading and this afternoon we will have the key PCE inflation number for March.  Anything above the expected 2.6% is likely to send USD higher as the market continues to look for reasons why Fed may not cut rate at all this year. 


USDJPY has pushed higher once again, trading as high as 156.50 this morning, some 100 pips higher than before the BoJ meeting where rates were kept unchanged.  There was a very limited statement which said little more than rates are on hold.  GDP forecasts were revised lower, inflation forecasts increased.  Japan FinMin Suzuki was of course on the wires expressing some dissatisfaction with the level of Yen but drew the line at saying whether action was necessary. 

AUD pushed a bit higher overnight on higher than expected PPI numbers.  Aussie watchers will be interested to read that a respected economic adviser to Judo Bank has said he is now looking for three 25bps rate rises in August, September and November to take RBA rates to 5.1%.  While some central banks are looking at rate cuts, others are clearly still too concerned about upside inflation risks.


US Secretary of State Blinken is in China having what sounds like rather difficult discussions,  The fact US and China are actually talking is a good thing, but China have made it clear they don’t expect US to meddle in their domestic affairs and there are many negative factors that could derail the rebuilding of their relationship.  The timing of the US communications commissions’s ban on Chinese firms offering broadband services into the US could hardly have been worse for Blinken although to be honest I’m surprised this hadn’t been put in place some time ago anyway.  Blinken may meet Chian President Xi before he leaves.


In Scotland, there is some talk that Humza Yousaf, the Scottish first minister, could resign today.  If not he will face a confidence vote next week which for the time being looks like ti won’t go well for him.  I won’t claim to be an expert on Scottish politics but from what I see many policies he has introduced or changed, and many speeches he has made, have been controversial and disliked.  On the subject of Scottish politics, Sturgeon’s husband Murrell was charged last week with embezzlement of SNP funds.  Its not going well up there at the moment.


In sport, Man City proved they are well and truly in the title race by beating Brighton 4-0.  City are now just one point behind Arsenal with a game in hand, making them favourites for the title once again.  Still, with four or five matches still to play there is plenty of opportunity for change at the top.  Arsenal take on Spurs this Sunday, I am certainly not confident going into this match, Arsenal have been playing some good football recently while Spurs have struggled.  I foresee several goals, not at the right end….


Its going to be an overcast and chilly weekend, not exactly what we want and the forecast into May doesn’t look much better.  I have a holiday booked for mid-June so I presume the weather in the UK will typically improve just as that holidays arrives. 


Have a great weekend, stay dry and warm!


-  09.00 ECBs de Guindos speaks

-  09.00 SNBs Jordan speaks

-  13.30 US PCE deflator, personal income/spending

-  15.00 US Michigan sentiment survey


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