Yesterday Andy Haldane, the Bank of England’s Chief Economist, said that the UK economy is going “gangbusters” and that the UK is already seeing “pretty punchy” price pressures. He commented that the BoE could start tightening the tap on QE. If the BoE does this it is the first step towards policy normalization and rising interest rates. The next BoE meeting is on June 24 and therefore expectations are rising that the BoE will announce the start to bond tapering then following in the BoC’s lead.
The JPY is a risk haven currency and typically sees weakness during times of global optimism. Global optimism is currently being fuelled by widespread vaccine hopes and that should keep the JPY pressured near term.
Key trade risks
The main risk to this trade is from any unexpected COVID news which causes the JPY to strengthen.
A sharp rise in US inflation could cause US 10 year yields to move sharply higher and that could result in risk-off trading if the move is hard enough.
High Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.