USDJPY Grinds Higher, Markets Consolidate
12 October 2022
Volatility in the markets continues to be elevated, but the medium-term trends remain intact, implying further strength for the USD and weakness for stocks and bonds.
Is BoJ ready to intervene again?
The yen dropped 0.3% to 146.32 versus the dollar, its lowest level since the Asian financial crisis of the late 1990s. Additionally, it exceeded thresholds that last month compelled the Japanese government to intervene in currency markets.
Since Finance Minister Shunichi Suzuki recently stated that further currency weakness would not be allowed, traders are now anticipating additional dollar sales by the Japanese government to boost the yen.
BoE rattles markets
BOE Governor Andrew Bailey hit the wires just before the US closed, bringing another wave of risk aversion. He said, among other things, that the Financial Policy Committee (FPC) decided to interfere in the financial market after realizing that market volatility was greater than the results of the bank stress test. In addition, Bailey said that the long end of the gilt market is seeing previously unheard-of volatility.
However, he also signaled the end of his emergency intervention by announcing his intention to withdraw from the market by the end of the week.
Following his remarks, equity markets plunged sharply, and the GBPUSD pair also fell circa 150 pips before retracing some losses.
Notably, following a 0.1% increase in July, the UK's Office for National Statistics revealed that the Gross Domestic Product decreased by 0.3% on a monthly basis in August. Manufacturing production and industrial production both saw declines during this time, by 1.6% and 1.8%, respectively.
Furthermore, the worst is yet to come, according to IMF head economist Pierre Olivier Gourinchas, who also predicted that 2023 might be a very terrible year for global growth.
The September Producer Price Index (PPI) data are due on the US economic program. The Federal Reserve will publish the minutes of its September meeting in the late American session. The president of the European Central Bank, Christine Lagarde, is set to speak, and market players will closely monitor BoE-related events.