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Pound rallies on BoE comments

The dominant theme in the FX space was a euro and pound rally against the majors.

The two currencies have held steady in Asian trade and could be looking to extend their gains in European trade later today. GBP/USD is near its highest level since January as we continue to get some hawkish commentary out of the BoE. The pair rallied to a high of 1.6357 and came within touching distance of this year’s high of 1.6328, which was printed in January this year. A break of that high would see cable trade at its highest level since August 2011.

The BoE released its financial stability report along with a speech by Gov Mark Carney. Mark Carney effectively took steps towards winding back on policy stimulus by ending mortgage loan incentives in a bid to restrain the UK housing boom. The changes to the BoE’s Funding for Lending scheme only applies to business loans from 2014 and will no longer be available for household borrowing effective January 1. Carney feels this will contribute to a constructive evolution of the housing market.

It’s been a bullish week all round for the pound after inflation report hearings from earlier this week showed significant progress, despite Carney saying he’s in no rush to raise rates. Later today we have a house price index report, net lending to individuals and mortgage approvals which could be a source of volatility.

Yen weakness persist in Asia

After a fairly quiet start to Asian trade, there is finally some movement in yen crosses after the much anticipated CPI numbers were released. The headline CPI reading came in at 1.1% y/y and up 0.9% ex fresh food which was bang in line with consensus. However, the CPI reading ex-food and energy came in at 0.3%, ahead of estimates of 0.2%. This reading is key as energy prices tend to distort the actual progress that the BoJ would want to see. Perhaps this shows Abenomics is working, and we’ve already seen the yen lose further ground to the greenback and euro. USD/JPY has printed a high of 102.41 and EUR/JPY 139.40. However, trade is likely to remain choppy heading into the weekend.

On the euro side, traders will be eyeing German retail sales, French consumer spending and the region’s CPI flash estimate for more direction. Further evidence of reduced deflation risk for the region could push EUR/JPY higher. EUR/JPY is holding above 1.39 and trading at its highest since October 2008.

EUR/JPY

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