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JPN: Overnight into Friday there will once again be a focus on the weekly Portfolio data from Japan.   The thinking was that the weaker yen would entice investors abroad for returns, but so far this has not proven to be the case.

GBP: Industrial production data of modest interest ahead of the interest rate decision.   The chances of a move on quantitative easing have diminished since last month, meaning only a modest bounce for sterling on such an outcome (10-15 pips).

Idea of the Day

The Bank of England decides on interest rates today and although there is little expectation of a change in policy on quantitative easing (QE), the recent voting history does reflect the dilemma facing central banks right now. For the past 3 months, we’ve see 3 members of the committee voting for more quantitative easing.   This is in contrast to the previous 4 years since QE started, during which the Bank has been pretty unanimous in QE voting.

Furthermore, the minutes have shown the ‘no change’ group sticking to their guns.   The latest data (GDP firmer than expected) has shifted the balance away from those wanting to see more QE, but this does leave sterling in the middle, between those central banks still expanding their balance sheet (Japan, less so the US) and those contracting (the ECB).   This could mean that the sterling bears continue to be frustrated for the time being.

Latest FX News

JPY:  Relatively steady overnight. The interesting price action continues to be on EURJPY, not least because this is where central bank balance sheets are diverging as the BoJ expands and the ECB contracts (as banks repay long-term loans). This has the potentially to break EURJPY above the 130 level on a more sustained basis, but for now the underlying momentum is lacking.

AUD:  A strong rebound in employment lifted the Aussie overnight.   The unemployment rate nudged lower to 5.5% (from 5.6%), with employment gaining 50.1k (from 36k fall last month). This comes after the latest rate cut and expectations of a peak in the mining sector output. Once again, the Aussie the Aussie’s move below 1.02 was all to brief and bears are once again.  Forex Analysis: AUD/USD Hits and Bounces off Range Bottom

NZD:  Strong labour market data also seen in New Zealand, the Q1 unemployment rate falling to 6.2% (from 6.8%) with employment rising 1.7% (falling fallen 1.0% in Q4 last year). Kiwi was up 0.5% vs. the USD to 0.8460 area, with AUDNZD holding recent gains just above the 1.21 area.

CNY:   Inflation data recorded an increase from 2.1% to 2.4%, a touch firmer than expected, although the producer price series showed a larger than expected decline, falling 2.6% YoY.    Yuan continues to strengthen, both CNY and CNH below the 6.15 level.