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The yen turn-around

After last week’s surprise move from the BoJ, we’ve seen some tough talking from BoJ head Kuroda overnight, stressing that the BoJ will do their utmost to achieve their 2% inflation target. But the yen was pretty ambivalent to the comments, USDJPY nudging lower again overnight back below the 120 level. Stocks were unimpressed today as well, down more than 3%, with Japanese bond yields now negative out to 8 years. In other words, the price dynamics on the yen that were evident before the move appear to be re-asserting themselves. The other currency doing well overnight was the kiwi, with the latest comments from their central bank governor undermining thought of easing later this year, allowing the gradual recovery in NZDUSD from the 0.6348 low seen last month.

Sterling was one of the weakest major currencies during most of January, in part as investors reacted to the uncertainty created by the impending referendum on EU membership, which looks almost certain to happen later this year. PM Cameron is set to give further details today. For the currency, the issue is the uncertainty created which has caused overseas investors either to lighten up on the currency or sell it to hedge their holdings of sterling denominated assets. It appears unlikely that this process has run its course, so the currency could remain vulnerable over the coming months and will be watching closely for any further details today. There will also be one eye on the CIPS services PMI data at 09:30 GMT, together with US ADP data at 13:15 GMT and ISM data at 14:45 GMT.

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