BoE Minutes: it is widely expected that the vote split will remain at 7-2

USD/JPY

As was to be expected, price action for the pair was largely dictated by the fallout of yesterday’s concerning Japanese GDP release. More specifically PM Abe was expected to announce a sales-tax hike delay, a stimulus package and possibly call for snap elections. This subsequently saw USD/JPY ebb higher towards the 117.00 handle throughout the session as participants eyed the ramifications of such measures. At his press conference, Abe announced a delay to the sales-tax delay as widely expected, while dissolving parliament. Despite not mentioning any size of a stimulus package, upon the announcement of the measures, USD/JPY actually fell lower in a buy the rumour, sell the fact manner as these decisions had largely been priced into the market by the time they were released. However, the move to the downside was halted by talk of leveraged names on the bid in the pair. Thereafter, the pair tracked movements in the USD-index to see the session out in relatively neutral territory. Looking ahead, tomorrow sees the release of the latest BoJ policy decision where participants will be looking out for any further clarity from the panel on the future path of monetary policy in lieu of the mounting inflationary concerns and recent stimulus decision.

EUR/USD

Against the grain of recent performance, the pair actually saw the European session out firmly in the green, with the USD-index under broad selling pressure throughout the session. A bulk of the move for the pair coincided with the aforementioned buy the rumour, sell the fact weakness seen in JPY. However, this move also came alongside a stronger than expected ZEW survey from Germany which saw the headline expectations figure come in at 11.5 vs. Exp. 0.5 and subsequently saw the pair consolidate its move above the 1.2500 handle. Thereafter, the pair continued its grind higher following the across the board weaker USD, with the latest PPI numbers also failing to provide the greenback with much in the way of reprieve. Despite the PPI numbers exceeding expectations, the USD strength was short-lived as the beat was largely due to a new calculation method which saw a 26.1% jump in margins for fuels and lubricants retailing. Therefore, the latest PPI reading is unlikely to change the future path of Fed policy, with markets now looking ahead to tomorrow’s FOMC minutes which are expected to be of a dovish nature and thus contrary to today’s US data release.

GBP/USD

Today the main focus for the pair was upon the latest UK inflation report particularly in the backdrop of last week’s QIR which warned that inflation called fall below 1% within the next 6 months. In terms of the release, the Y/Y CPI figure came in at 1.3% vs. Exp. 1.2% and thus avoided the dovish surprise that some had been expecting, which subsequently prompted the pair with a bout of strength alongside the weaker USD. Thereafter, the pair traded in a relatively rangebound manner with participants looking ahead to tomorrow’s BoE minutes release. In terms of expectations for tomorrow, it is widely expected that the vote split will remain at 7-2, although there are some outside bets that this could return to 8-1 in lieu of the concerning inflation outlook for the UK. However, given that the meeting took place before the release of the QIR, even if the vote split vote was to go from 7-2 from 8-1 this would likely not garner a sustained reaction as markets have already priced in the likelihood of a later than initially thought increase in interest rates.