BoJ finally move away from negative rates, but Yen still weakens

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place last weekend. 

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

This will be until Sunday 31st when we change our clocks in the UK.

We witnessed a pretty historic event overnight as BoJ did indeed raise rates for the first time in seventeen years, taking them away from zero interest rates.  OK, so we’re not talking a huge move, a mere 0.1% increase, but it’s a start.  BoJ will continue to purchase JGBs, perhaps that’s the next step on the way to more normal monetary policy.  Yen has actually weakened post the announcement, USDJPY is now at 150.35 and GBPJPY up at 191.00, the fact the bond purchases are ongoing is a likely reason, plus a cautious assessment of the economy by BoJ with downgrades of production and consumption forecasts.  It seems likely that BoJ will keep rates at these levels for a considerable time.

The general USD buying against Yen seems to have spilled over into the other majors, GBPUSD is now trading down at two week lows around 1.2700 and EURUSD at 1.0850, which puts GBPEUR at 1.1700.

RBA left rates unchanged at 4.35% overnight, but a slightly less hawkish tone from them has seen AUD weaken, with GBPAUD up to 1.9500 and  AUDUSD down to 0.6510.  The took the phrase ‘a further rise in interest rates cannot be ruled out’ out of the statement and RBAs Bullock said that although inflation is above target, consumption is slowing and labour market conditions are easing, quite a change from last months meeting and yet another sign of just how difficult it is for central banks to gauge the economic situation at present.

ECB officials continue to err on the dovish side, with Centeno yesterday saying the economy is stagnant and that lower rates may help prevent a recession.  ECBs de Guindos said they see a clear disinflationary process, a decrease in the rate of inflation , and said by June they will have more information with which to decide when to cut rates.  De Guindos added that ECB move independently of Fed.   

Today sees Canadian inflation numbers.  USDCAD is up at 1.3575, helped as well by the general bout of USD buying post-BoJ, now heading towards the highs since mid-December and any weak reading could extend that CAD weakness.  Watch the 1.3600-1.3615 area.

We also have some housing data from the US.  I don’t usually watch this too closely but last month’s data was pretty poor and recent housing data has shown signs of improvement.  It is possible the last reading was adversely affected by bad weather, so it will be interesting to see the scale of any rebound.

Early tomorrow morning we will have the latest UK inflation release, then later tomorrow we will have the FOMC rate announcement, so could make for an interesting

Day.  UK inflation surprised to the downside last time out, it would be good if it can at least show signs of holding rather than rising although there are some concerns that the higher minimum wage could start impacting inflation at some point.  It would take something for BoE to do anything other than keep rates unchanged on Thursday.

We have had more than our fair share of bad news, wars and pandemics over recent years.  To add to our woes, I have been reading that the price of cocoa has been pushing higher.  In January it was down around $4,000, it is now above $8,000.  The impact on chocolate prices cannot be far away so chocoholics should consider stocking up.  The key question is Dairy Milk or Galaxy.  Can’t say I’m fussed, but I’m never averse to having both, purely for comparative purposes of course.   

Have a great day, I’m actually up in London for a lunch today which is always a treat, but of course we remain available for anything you require from the world of currencies.

-  10.00 German ZEW

-  12.30 CAD CPI

-  12.30 US housing starts

-  20.00 NZ Westpac consumer sentiment

-  01.15 PBoC rate announcement

-  07.00 UK CPI, PPI, RPI

-  07.00 German PPI

BoJ finally move away from negative rates, but Yen still weakens

BoJ set to raise rates for first time in 17 years

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place last weekend. 

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

This will be until Sunday 31st when we change our clocks in the UK.

GBPUSD spent Friday stuck in a fairly tight range, between 1.2725 and 1.2760 and not a lot has changed there since the open Sunday night.   EURUSD too has seen a similarly tight trading range that has been mostly within the 1.0880-1.0900 area. GBPUSD seems to struggle to hold gains, now 1.1695, for most of the last month it has been between 1.1670 and 1.1720, save for a couple of brief forays out of that range.  ECB officials have been pretty dovish recently but seem happy to wait until June before calling for a rate cut.

The US dollar saw some buying interest last week on higher inflation numbers, with some suggestion that hopes of a June rate cut are fading, with expectations being pushed back towards September, and there is a chance we’ll see less than three 25bps cuts through 2024.  Remember,  it was not that long ago that the markets were looking at up to six rate cuts from the Fed this year.  Higher than hoped inflation releases had seen the market move towards the Fed’s thinking that three cuts were more likely, now it is possible we only see one or two cuts.  The Fed’s own dot plot will be released at their rate meeting this week, more on that nearer the time.

Before then we have the BoJ rate announcement due in the early hours of tomorrow morning.  USDJPY spent last week pushing higher from 146.50 to a high this morning of 149.30.  The front page of the Nikkei at the weekend reportedly said BoJ would raise rates for the first time in seventeen years tomorrow, earlier than many had been expecting, as such a weaker Yen looks slightly odd.  Mind you, they are talking about a move from -0.1% to zero, so still considerably lower than many countries and we have previously been warned that BoJ would be in no rush to move away from zero.  BoJ could also lower or end bond purchases and yield curve control measures.  Note that the timings on the calendar are estimates.

Overnight we will also have the latest RBA rate announcement.  They are expected to keep rates unchanged at 4.35%, some think they could continue to give a hawkish message as they did last month when they made it clear they were far from convinced that inflation could be sustainable in the target range.  GBPAUD is currently around 1.9400, another hawkish tilt could see that push back down to the 1.93 area, while a surprise dovish tilt is likely to see AUD trade lower, pushing GBPAUD back to 1.95 and beyond.  

There will be little rest after the EU inflation and the BoJ and RBA rate announcements.  We’ve got FOMC and BOE rate announcements, UK, Japan and CAD inflation, UK retail sales,  NZ GDP, Aussie employment and a host of PMI’s from UK< EU and US. 

In other news, no surprise that Putin scored a resounding victory in the Russian elections, with some 87% of the vote.  13% of Russian voters will no doubt spend the next few weeks looking over their shoulders.  Putin spent his victory speech declaring how the Russian voting was more democratic that the US.  We know the US and indeed the UK have seen some questionable postal voting but I fail to see how running an election while not really allowing any  opposition can ever be deemed as democratic.

Sport didn’t go exactly to plan over the weekend.  I was hoping for a Scotland win against Ireland and an England win against France in the six nations, plus of course I was looking for Spurs to beat Fulham.  All of those went horribly wrong.  There was a shining light for Mark as Leeds took top spot in the Championship with a win over Millwall.  Their main rivals, Leicester, have seen a lead of something like 17 points slip away in recent weeks.

The FA cup threw up some very exciting matches, the last ten minutes of Wolves v Coventry saw three goals which sent Coventry through, while yesterday we saw a spirited Man Utd knock out Liverpool in extra time in a seven goal thriller, in what must have been one of the best FA cup ties for a long time.  They now face Coventry in the semi-finals, while Man City take on Chelsea. 

That’s about all for now.  I hope you enjoyed the weekend, the weather certainly on Saturday was pretty decent, the lawn got mowed, just as well given the alarming rate with which it grew in the last week, and I managed a few other chores in the garden while also managing to watch some sport and meet some friends.  All in all a good weekend.  Dare I say the forecast is now looking a touch better than it did a week or so ago, we’ve not seen the last of the rain but it doesn’t look quite as bad looking ahead.  Mornings and evenings still getting lighter

-  10.00 EU HICP

-  03.00 BoJ rate announcement

-  03.30 RBA rate announcement

-  04.30 RBA press conference

-  06.00 BoJ press conference