Market Review - 19/09/2019  23:55GMT  

Dollar pares post-FOMC gains, sterling rises on renewed Brexit optimism

The greenback surrendered Wednesday's post-FOMC gains and ended lower against majority its peers on Thursday due partly to falling U.S. yields. Sterling rallied across the board on renewed Brexit optimism.  
Versus the Japanese yen, the greenback met renewed selling at 108.46 at Asian open and tumbled to an intra-day low at 107.80 in Asian morning on broad-based buying in jpy after the Bank of Japan kept its rates on hold. The pair then staged a short-covering rebound to 108.13 in European morning before trading sideways in subdued New York session.  
Reuters reported the Bank of Japan kept monetary policy steady on Thursday but said it would re-examine economic and price developments more thoroughly at its next policy meeting in October.  "The BOJ judges that it is becoming necessary to pay closer attention to the possibility that the momentum towards achieving its price target will be lost," the central bank said in a statement.  "Taking this situation into account, the BOJ will re-examine economic and price developments at its next policy meeting, when it updates the outlook for economic activity and prices," it said.    
As expected, the BOJ maintained its short-term interest rate target at -0.1% and a pledge to guide 10-year government bond yields around 0%.  The BOJ also kept intact its forward guidance - or a pledge central banks make on future monetary policy - that commits to keeping current ultra-low interest rates "for an extended period of time, at least through around spring 2020."  The decision on maintaining its interest rate targets was made by a 7-2 vote, with board members Goushi Kataoka and Yutaka Harada dissenting.  
The single currency found renewed buying at Asian open low of 1.1024 and traded with a firm bias. Euro then rose to session highs at 1.1073 ahead of New York open due partly to cross-buying in euro especially vs sterling and usd's weakness before retreating to 1.1039 in New York.  
The British pound went through a roller-coaster ride as despite initial gain to 1.2500 in European morning, price dropped to an intra-day low at 1.2438 ahead of New York open on soft UK retail sales data and as the Bank of England kept its rates on hold. However, cable then erased its losses and rallied to a 2-month high at 1.2560 in New York on positive Brexit comments from European Commission President Jean-Claude Juncker.  
Reuters reported earlier a Brexit deal is possible, European Commission President Jean-Claude Juncker said on Thursday, adding that if the Irish border backstop which the British government wants removed could be replaced with alternatives, it would not be needed.   "I think we can have a deal" Juncker said in an interview with Sky News, adding that he didn't know if the chances of a deal were more than 50-50.     

In other news, Reuters reported the Bank of England said Brexit uncertainty was causing slack to re-emerge in Britain's economy and damaging productivity, and a failure to reach a transition deal by Oct. 31 could lead to further weakness.  The nine members of the BoE's Monetary Policy Committee all voted to keep rates on hold at 0.75% in September's policy decision, and reiterated a warning that leaving the European Union without a deal would slow growth and raise prices.    
If Britain does manage a smooth departure from the EU, the BoE said it would return to its long-term goal of raising British interest rates in a limited and gradual way, assuming global growth recovers somewhat.   If Britain leaves without a deal, rates might need to move up or down, depending on the inflationary shock of any slump in sterling, the BoE said, though Governor Mark Carney has said he personally believes a rate cut is more likely to be needed.    
The central bank's staff cut their forecast for economic growth in the third quarter of 2019 to 0.2% from 0.3%, and the BoE projected that inflation would stay below its 2% target for the remainder of the year, largely due to an energy price cap.  
On the data front, Reuters reported the number of Americans filing applications for unemployment benefits increased less than expected last week, pointing to strong labor market conditions that should continue to support a moderately growing economy.  Initial claims for state unemployment benefits rose 2,000 to a seasonally adjusted 208,000 for the week ended Sept. 14, the Labor Department said on Thursday. Data for the prior week was revised to show 2,000 more applications received than previously reported.  Economists polled by Reuters had forecast claims increasing to 213,00 in the latest week. The Labor Department said no states were estimated last week.  
Data to be released on Friday:  
Japan national core, national CPI, Germany producer prices, Canada retail sales and EU consumer confidence.  

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