Home Yen reflation

GBP:  The past two interest rate meetings have seen 3 votes for more QE, so the minutes have been of particular interest for the currency.   Last month those not voting for more QE were concerned about the potential negative impact on the currency, but the pound has since recovered, especially vs. the dollar.   But the MPC think a long way ahead, much further than most FX players.   As such, it would be surprising to see some of them turn this month, but if they do (so 4 vote for more QE), sterling would be vulnerable.

CAD: The Bank of Canada announces its rates decision today at 14:00 GMT.   Rates have held at 1.00% since September 2010, but the focus will be on the statement and signs of a change to their forward guidance. This is unlikely to change (rates seen on hold for some time to come), although the recent run of softer data could see a more dovish tone emerge, which would see USDCAD move further above the 1.02 level.

Idea of the Day

After the initial shock and awe over the Bank of Japan’s push to reflate the economy, the yen has settled down and remains the strongest performer on the majors over the past week.   The yen has taken on some of its safe haven status of old during this time, as more mixed messages have come through on the global economy and gold has fallen through the floor.   The Japanese authorities remain confident that their 2% inflation goal will be achieved. The market has also seen a near doubling of 5 year inflation expectations so far this year, but this measure remains off the high seen mid-March. For USDJPY to sustain a move above 100, the market will have to display a greater confidence in the ability of the authorities to follow through on their inflationary promise.

Latest FX News

AUD: Drifting modestly lower during Asia trade, to hold near to 1.0350.  The Aussie has been hit in the cross-fire from the gold sell-off, but not as much as would have been the case last year when correlations with commodities and the Aussie were a lot stronger.

Gold:  The chart resembles a dead cat bounce from the sell-off see on Friday and Monday and holding below 1400 during Asian trade.

GBP: The IMF enacting a modest downgrade of their UK growth outlook for this year and becoming more insistent on the UK moving away from its path of austerity.

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