Dear Clients,
Below is this week’s market forecast from our trade desk here at LTI.
The main event over the past week has been the BoJ’s latest policy
update. The BoJ’s decision to leave YCC policy settings unchanged triggered an
initial sharp JPY sell-off but those losses were quickly reversed. Market speculation
over a further shift in BoJ policy will continue in the coming months encouraged by
the upcoming change in leadership at the BoJ, and ongoing concerns over the
functioning of the JGB market. We stick to our bullish outlook for the JPY despite
the near-term setback. The ongoing sell-off for the USD should also help dampen
the upside for USD/JPY. Incoming activity and inflation data from the US continue to
surprise the downside reinforcing expectations for the Fed to slow further the
pace of hikes in February. The BoC’s upcoming policy guidance in the week ahead
will be watched closely to see if they signal a pause in rate hikes that could spill-
over into Fed rate hike expectations and a weaker USD.
Sterling continues to perform well and is holding onto the gains made last week on
the back of high wage and core CPI readings. The market now prices a 45bp Bank of
England (BoE) hike at next week’s meeting. The firming up of BoE tightening
expectations has allowed the sterling to match this year’s strength of the euro.
We wish you all a great week, in and out of the markets.
Kind Regards,
LTI