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11.07.2016 12:27

European session review: Yen declined substantially amid expectations of new economic stimulus measures

The following data was published:

(Time / country / index / period / previous value / forecast)

6:00 Japan Change in orders for equipment (preliminary data), y / y -24.7% -19.9%

The dollar weakened slightly against the euro, returning to session lows. Nevertheless, the overall demand for the US currency remained elevated after the publication of strong US labor market data on friday. Recall, the number of people employed in non-agricultural sectors increased by 287 000 (maximum increase since October 2015). The data for May was revised down to 11 000 to 38 000. The unemployment rate rose 0.2% to 4.9%. Economists had forecast employment growth of 175,000 and an increase in unemployment to 4.8%. The level of participation in the labor force increased by 0.1% to 62.7%. Meanwhile, the average hourly wage increased by only 2 cents, or 0.1%. Experts point out that recent data have convinced investors the stability of world's largest economy, despite the fact that the Fed will not raise rates in the near future. Now the interest rate futures on the Fed indicate 23 percent chance of rate hike in December.

The British pound recovered approaching 8 July high. Support was provided by some media that claims Andrea Leeds will make a statement about the withdrawal from the race. After the referendum, the head of the Bank of England Carney said that to support the economy will probably require an easing of monetary policy during the summer. Thus, Carney signaled that the Central Bank may lower interest rates. He added that the Bank of England has a number of other tools to protect the economy and banking system, which may indicate a resumption of the bond purchase program. After the unexpected results of the referendum, analysts expect a prolonged period of uncertainty and volatility. However, many predict a recession, increasing inflation. Most likely, the Central Bank may consider a rate cut to 0.25% an adequate measure, and so leaving room for further policy easing. Tomorow we can find which one are more likely.

The yen fell about 200 pips against the US dollar, reaching 5 July low. The reason for such dynamics are reports that the Japanese government is preparing to take measures to stimulate the economy. Today, Japanese Prime Minister Shinzo Abe said that on July 12, he intends to instruct the Minister to prepare a comprehensive economic revival of economic measures to remedy the situation. The need for measures to stimulate the Japanese economy has been discussed for a long time, but all were waiting for the upper house election results, which took place this Sunday.

EUR / USD: during the European session, the pair fell to $ 1.1014, but then was bid to $ 1.1060.

GBP / USD: during the European session the pair fell to $ 1.2849 and then rebounded to $ 1.3017.

USD / JPY: during the European session, the pair rose to Y102.47.

Market Focus

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  • German private sector output growth slowed for the second month running in July
  • ECB's Mersch says as conditions normalise, it is unlikely that uncoventional policies will remain necessary
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