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21.09.2016 12:31

European session review: the US dollar significantly lower against the yen

The following data was published:

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

6:30 Japan Press Conference of the Bank of Japan

8:30 UK net borrowing state. sector billion. August 2.43 -10.3 -10.05

The Japanese yen has strengthened considerably against the dollar, recovering all the ground lost after the announcement of the Bank of Japan. The catalyst for the growth of the yen were the statements of the Bank of Japan's governor Haruhiko Kuroda. He noted that the Japanese economy emerged from a state of deflation, which lasted 15 years. "The Bank of Japan will continue to pursue a flexible monetary policy and did not hesitate to implement additional stimulus measures if needed to achieve the inflation target as soon as possible and is still a priority for the Central Bank." - Said Kuroda, adding that now the Central Bank is focused on targeting bond yields and ready to reduce the volume of purchases of bonds. Kuroda also said that the recent changes in the policy framework were 50% due to fears that the combination of negative interest rates and quantitative easing has a very negative impact on banks' profits and consumer sentiment.

Recall, at the end of the two-day meeting, the Bank of Japan left interest rates on deposits at the level of -0.1%. The Board also left unchanged the target volume of purchases of government bonds - at 80 trillion yen per year. However, the Central Bank unexpectedly introduced a target rate of return on 10-year government bonds at 0% within the framework of strengthening the fight against deflation. This measure was taken after the assessment of existing measures that do not yield results. The Bank of Japan first introduced the target level for the long-term rates, and it happened at a time when other central banks have difficulty in finding ways of accelerating inflation. "Investors reacted positively to the decision, considering that the Central Bank will make every effort to overcome deflation," - said Kengo Suzuki analyst at Mizuho Securities.

The British pound rose moderately against the US dollar, as investors adjusted their positions ahead of Fed's decision on rates. Investors' attention is also drawn by the British data. Office for National Statistics reported that the results of last month's budget deficit was lower than in the same period of 2015. Net borrowing of the public sector decreased by 0.9 billion pounds compared to August 2015 and amounted to 10.5 billion pounds.

Also in focus were revised forecasts from the Organisation for Economic Cooperation and Development. The OECD lowered the forecast for world GDP in 2016 to 2.9%. In June, the OECD expected an increase of 3%. Global GDP in 2017 deteriorated to 3.2% from 3.3%. A slight decrease reflects the weakening of forecasts of major economies of the world, especially in Britain, in 2017, partially offset by the gradual improvement of the situation in the main emerging markets. Also, the OECD pointed out the very weak growth in trade. The rate of increase in world trade slowed down approximately double compared to pre-crisis levels.

The US dollar fell slightly against the euro, returning to the opening level due to investors caution before the announcement of the Fed meeting outcome. The median estimate of more than 100 economists polled to Reuters show that rates will increase to 0.50-0.75 percent in the fourth quarter, and, most likely, in December (average probability of 70 percent). Recall that in a survey last month, the chances of a hike in December were at 57.5 percent.

EUR / USD: during the European session, the pair fell to $ 1.1122, but then went back to $ 1.1160

GBP / USD: during the European session, the pair rose to $ 1.3005 from $ 1.2944

USD / JPY: during the European session, the pair has collapsed to Y100.94 from Y102.79

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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