BoJ going nowhere

Monday was characterised by creeping dollar strength, with emerging markets and the dollar bloc (Canada, Australia, New Zealand) losing out the most. Perhaps this was not that surprising as we headed into central bank meetings the BoJ overnight tonight, followed by the US Fed on Wednesday evening. The BoJ made no changes to policy overnight and retains some confidence on the economy, although with plenty of prevailing risks. The scope for further easing remains strong, given that inflation appears further than ever from achieving the 2% level on a sustained basis that was the aim when Japan went all in more than 2 years ago.

The yen has strengthened a touch overnight against the backdrop of a generally firmer dollar, with this most evident against sterling. The UK currency remains vulnerable in a generally more risk averse environment, which we’re seeing this morning as stocks weaken and the oil price weakens below the USD 40bp level. Cable is edging towards the 1.42 level as we enter the European session. The Brexit issue, although 3 months away, remains a weight upon the market, especially for longer-term investors. Note that the Fed begins its two day meeting today, with the results coming tomorrow evening. Before then, we have the release of retail sales and PPI data in the US, where we can expect to see greater focus on the extent to which the US consumer is becoming more cautious against the wider global risks to the US economy.

Did you know?

If overwhelmed by pessimism and falling prices, the FX market is defined as “bearish”, while if characterised by optimism and rising prices, it is called “bullish”. These two terms derive from the way in which bears and bulls attack their opponents, with the former swiping its paws downwards and the latter thrusting its horns upwards.

Word of the day
"Pip" - The smallest increment in which a currency pair can move. It is usually the fourth decimal place of the quote currency in a pair. In the case of the Japanese yen (JPY), it is the second decimal place of the quote currency.
Pro Tip

Higher leverage --> Less funds required as margin / Lower leverage --> More funds required as margin

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