Forex: Bank of England up next

Bank of Japan Governor Kazuo Ueda recently issued a series of warnings regarding potential policy actions by the BOJ, particularly in response to the yen's weakening. He emphasized the challenges that sudden and one-sided movements in the yen pose for companies in planning their business strategies, hinting at the possibility of BOJ intervention. This sentiment was echoed by Japan's top currency official, Masato Kanda, who indicated that Japan is prepared to take necessary action on the currency, possibly in the near future. Despite these warnings, the yen has continued to weaken, reaching 155.65, albeit at a more controlled pace following suspected FX intervention. Typically, Tokyo intervenes when market get unruly not during controlled sell off

The weaker yen has sparked renewed discussions about potential competitive devaluation, with Bloomberg stirring the pot by soliciting quotes from sell-side FX analysts on various "what if" scenarios. However, the notion of a competitive devaluation war remains a distant possibility, as it could trigger a VAR shock globally. Such a scenario is still very unlikely, unless the People's Bank of China (PBoC) decides to widen the trading band for the Yuan. Nevertheless, this is another improbable scenario, as the yuan serves as a key policy rudder for stability in China capital markets.

After more than three decades in various FX trading hot seats , I've developed some, let's say, "reservations" about the reliability of sell-side FX forecasts. In fact, I harbor doubts about all sell side forecasts, regardless of the source.

In times long past, on a distant planet known as Wall Street, research reports were not considered newsworthy. Even now, by any conventional definition of the term "news," they still aren't. However, they are often transformed into news-like pieces, typically to fill gaps in coverage, especially on days when other news is scarce. It seems today is one of those days for Bloomberg's JPY FX editor.

In the G10 space, investors are closely monitoring the Bank of England's policy meeting scheduled for later today. There is anticipation regarding whether the BOE will signal a move towards cutting rates. While the consensus is for the BOE to maintain rates, there is speculation that one MPC member could vote in favor of a rate cut.

Recent comments from Deputy Governor Ramsden suggest a shift in risk assessment towards downside inflation, adding to the anticipation. Additionally, the BOE's updated inflation projections will be scrutinized for any signs of reduced concerns over upside inflation risks. These developments come after the Swedish central bank's decision to cut rates and signal further cuts in the latter half of 2024. The dollar saw some strength, while equities experienced declines as markets processed these developments.

From my perspective, Powell and his team at the Federal Reserve hold the reins when it comes to dictating the direction of the dollar. Meanwhile, the Bank of Japan seems to be painting themselves into a corner by possibly having to raise to strengthen the Yen.

Ramble

Looking for some bullish vibes? Well, you're not alone in that quest!

Interestingly, the financial media and tabloid blogs seem to have a penchant for bearish narratives. But let's face it, fear sells more than optimism in those circles.

For us regular investors, a simple and steady approach tends to yield the best results. I mean, who can argue with the wisdom of buy-and-hold indexing? It's like the gospel of investing.

So, in the midst of all this noise, it's crucial to maintain a cautiously bullish stance. That means being optimistic but not reckless. After all, there's a fine line between vigilance and paranoia, and we definitely want to steer clear of the latter.

Now, about those bullish narratives. Did you know that historically, the period from June to August has been pretty strong for the market? Pulling some interesting views from one of my favourite analysts who got bored with the sell side ( I won’t accredit him as far too smug) According to BofA's Stephen Suttmeier, US stocks have risen about 65% of the time during this period, with an average return of 3.2%.

And here's the kicker: this seasonal trend gets even stronger during the fourth year of presidential cycles. Guess what? Yup, you guessed it right. 2024 happens to be a year four.

So, despite all the doom and gloom peddled by some, there's plenty of reason to stay optimistic about the market. After all, history tends to repeat itself, right?