USDJPY falls on possible intervention after hitting new highs

Good morning

I hope you enjoyed the weekend and have returned fresh for another week.  Weather was a bit miserable, typically it looks like we’ll not have a couple of warmer and drier days. 

Action in Yen is dominating the headlines.  USDJPY traded above 160.00 overnight before suspected intervention took it down to almost 155.00.  It is now 157.00.  Yen crosses saw similar moves, GBPJPY hit 200.50 and EURJPY 171.50 before each plummeted to 194.50 and 166.40, now 196.70 and 168.25 respectively.  Japan have not confirmed taking action but given the scale of the move it is surely the only option.  It is actually a holiday in Japan today so liquidity was likely to have been thinner which could have exaggerated the move.

We did have a dip on Friday in USDJPY as well, not quite to the same extent but USDJPY fell rapidly from 156.70 to 155.00, although it did recover pretty quickly and indeed went on to make gains through the day.  Whether or not this move had any relation to intervention also remains to be seen.  Tomorrow we will see the Japan MoF FX operations data which should confirm what action they have taken.

On Friday we had the core PCE data from US.  It actually came in a touch higher than expected and USD did push higher through the afternoon but by the close it had give up a lot of those gains, and we’ve since seen a knock on of the huge USD selling against Yen overnight which has taken GBPUSD up to 1.2525 and EURUSD to 1.0715 from their Friday lows of 1.2450 and 1.0675.

In the UK we’re watching the political situation in Scotland closely.  Current First Minister Humza Yousaf has not resigned yet but may do so before facing a confidence vote.   Otherwise we have EU sentiment data and german inflation out today, neither of which are really likely to sway the markets.  Attention mostly on further intervention potential.

While today could be on the quiet side, this week is a big one, with US Fed rate announcement and US nonfarm jobs data the highlights.  We’ll also have other US JOLTS job numbers, ISM PMIs, plus EU inflation numbers through the week.  Plenty to keep us busy.

As feared, Spurs lost to Arsenal despite a decent attempt at a second half come back, just not enough to overturn a 3-0 deficit.  It was entertaining but highlighted Spurs’ fragility in defence.  Arsenal stay top of the league but Man City are one point behind them with a game in hand, and remain favourites.  Liverpool could only muster a draw at West Ham, they are not totally out of the title race but it would take both Arsenal and Man City to completely mess up.  Spurs face Chelsea on Thursday and Liverpool Sunday.

Mark wasn’t a happy chappy either as Leeds did nothing to help their fight for the automatic promotion places, losing to QPR 4-0,  Still, with Ipswich only managing a draw against Hull, Leeds remain in second place on goal difference although Ipswich do have a game in hand.  Leicester’s victory over Southampton sealed their return to the top flight, after a mid-season collapse looked like they had ruined their chances.

That’s all from me for now, have a great week.

-  10.00 EU consumer confidence

-  13.00 German HICP

-  00.30 Japan unemployment

-  00.50 Japan retail trade

-  02.30 AUS retail sales

-  02.30 China manufacturing, non-manufacturing PMI

-  02.45 China caixin manufacturing PMI

-  07.00 German retail sales

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

All eyes on Yen as it weakens further ahead of BoJ meeting

Good morning

The US Dollar is weaker against GBP and EUR, they have risen this morning to 1.2495 and 1.0725 respectively.  The big news however come in Yen, which is currently trading at 155.70 against USD and 194.40 against GBP.  We’ve heard little from Japanese officials, perhaps they have given up trying to talk yen higher.  But with the BoJ meeting in the early hours of tomorrow morning I’m surprised we’ve seen so much yen weakness.  Surely BoJ will give a pretty hawkish yen statement, and a rate rise is not out of the question.  Very tempting to buy an overnight USDJPY put, they are not cheap of course, the 155.00 strike costs around 70 yen pips but there is a fairly decent risk/reward to this idea.

Weak retail sales data yesterday sent CAD lower, GBPCAD breaking above 1.7025 to hit a high just above 1.7100, having seen a low this week just below 1.6900.  Yesterday evening we saw the results of the latest BoC meeting which showed that members are generally more confident that inflation is heading back towards the 2% target but they are split on rate cut timing, with some preferring to err on the cautious side.

US GDP will be seen this afternoon, expected to come in at an annualised 2.5% which would be down on the previous couple of quarters but still showing growth.  The initial jobless claims number will also be of interest given the recent strong US jobs data.  Tomorrows PCE deflator release will also be closely watched.

We will have the latest Turkish central bank rate announcement.  Rates are currently at 50% and the feeling is they will keep them on hold there, however the same was said last month and CBRT ended up raising rates 5%.  USDTRY currently 32.56, while EURTRY is just a touch below 35.00. 

Liverpool’s title chances were dealt a huge below last night as they lost 2-0 to local rivals Everton.  They are not completely out of it but need both Man City and Arsenal to have a couple of upsets.   Man City play Brighton this evening, can’t see City losing that one, while Arsenal face Spurs on Sunday.  A massive game for both sides.  Can’t say I’m looking forward to it.

I was up at the crack of dawn this morning, well actually well before the crack of dawn.  We have a couple of Aussie’s staying with us and I drove them up to the ANZAC dawn service.  Quite nice driving around London at 4am with very little traffic around but it does make sticking to the 20mph and 30mph speed limits on the A4 quite difficult.  I think they appreciated it, fortunately the tubes are running now so they are making their own way back to my place.   I’m sure they’ll need a nap when they get back.  Actually that’s not a bad idea……

Have a great day.

-  09.00 ECB economic bulletin

-  12.00 CBRT rate announcement

-  13.30 US GDP, initial jobless claims, PCE

-  15.00 US pending home sales

-  16.15 ECBs Nagel speaks

-  00.01 UK GfK consumer confidence

-  00.30 Japan Tokyo CPI

-  02.30 AUS PPI

-  03.30 BoJ rate announement

-  04.00 BoJ press conference