A bank holiday breather
A US bank holiday yesterday meant that FX ranges have been relatively contained so far this week amidst lighter volumes. The Dollar itself has stalled in its latest attempt to claw back ground lost over the past few months as debasement fears grew. In addition to yesterday’s US bank holiday limiting traded volumes, this week is also relatively light on the economic calendar. To be specific, whilst there are ample releases scheduled, the salience of such data, particularly after last week’s non-farm payrolls data, is likely to be limited.
One of the stand out pairs to watch continues to be USDJPY. Despite taking a breather yesterday, markets will continue to monitor the revival being staged by the Yen as the pair trends lower following the snap election earlier this month. Markets are continuing to price a Goldilocks outcome – stronger economic growth without excessive fiscal profligacy creating a threat to the sustainability of public finances.
Japan has by far the highest debt to GDP ratio amongst the G10. Markets have tolerated this paradigm given a persistently stable price level. The second that the role of the Japanese consumer and sustainability of debt get called into question all such progress made in USDJPY post-election could be unwound in a disorderly fashion. Tomorrow sees the release of further jobs numbers which if in conflict with last week’s non-farm payrolls may prompt volatility. Looking further ahead, Friday will see inflation and economic growth figures published in the US.
Discussion and Analysis by Charles Porter
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