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Forex: Yen Slumps on Tax Cut Chatter, 2Q UK and US GDP on Tap

Forex: Yen Slumps on Tax Cut Chatter, 2Q UK and US GDP on Tap

Ilya Spivak, Head Strategist, APAC

Talking Points

  • Japanese Yen Sinks While the Nikkei 225 Soars on Corporate Tax Cut Chatter
  • Pound Looks to 2Q UK GDP Revision to Guide BOE Guidance “Knockout” Bets
  • QE “Taper” Speculation to Guide Dollar’s Response to “Fed-speak”, GDP Data

The Japanese Yen slumped overnight as the benchmark Nikkei 225 stock index staged a sharp recovery following initial losses early in the Asian trading session, weighing on the regional safe-haven unit. A flurry of news-wire reports attempting to explain the move cited a report from Kyodo News claiming the government will announce an intention to “promptly” study cutting the effective corporate tax rate along with its fiscal stimulus package on October 1. The New Zealand Dollar outperformed, rising against all of its G10 FX counterparts in a move that looked to be corrective following yesterday’s outsized selloff.

The final revision of second-quarter UK GDP figures is in focus in European hours. Economists expect confirmation of initial estimates showing output grew 0.7 percent in the three months through June from the prior quarter. An upside revision may send the British Pound higher as investors speculate that stronger growth will breach the “knockout” thresholds in the BOE’s forward-guidance framework and prompt an unwinding of stimulus sooner than expected. Needless to say, a downgrade of the GDP reading stands to yield the opposite result.

Later in the day, Fed policy speculation returns to the forefront as investors attempt to set a new baseline for when the US central bank will make its move to “taper” asset purchases after this month’s disappointment. The spotlight is on the final revision of the second-quarter US GDP reading. Forecasters expect an upgrade to 2.6 percent from the previously estimated 2.5 percent outcome. A firm result may stoke bets on a relatively sooner move to slim down stimulus, boosting the US Dollar. Conversely, a downgrade stands to weigh on the greenback.

The weekly Jobless Claims data set and Augusts’ Pending Home Sales report are also on tap. On the “fed-speak” front, the focus will be on remarks from Fed Governor Jeremy Stein, a middle-of-the-road voice on the FOMC’s hawks/doves spectrum whose views have generally fallen in line with the Bernanke-led consensus. With that in mind, his remarks may prove telling of the dominant “taper” timing view on the policy-setting committee and may thus find an eager audience in the financial markets.

New to FX? Watch this Video. For live market updates, visit the Real Time News Feed

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

1:30

AUD

Job Vacancies (AUG)

3.1%

-

-7.3%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

8:00

EUR

Euro-Zone M3 s.a. (YoY) (AUG)

2.3%

2.2%

Low

8:00

EUR

Euro-Zone M3 s.a. (3m Avg) (AUG)

2.3%

2.5%

Low

8:30

GBP

Current Account Balance (£) (2Q)

-11.0B

-14.5B

Low

8:30

GBP

GDP (QoQ) (2Q F)

0.7%

0.7%

Medium

8:30

GBP

GDP (YoY) (2Q F)

1.5%

1.5%

Medium

8:30

GBP

Total Business Investment (QoQ) (2Q F)

0.9%

0.9%

Low

8:30

GBP

Total Business Investment (YoY) (2Q F)

-3.5%

-3.5%

Low

Critical Levels:

CCY

SUPP 3

SUPP 2

SUPP 1

Pivot Point

RES 1

RES 2

RES 3

EURUSD

1.3358

1.3433

1.3480

1.3508

1.3555

1.3583

1.3658

GBPUSD

1.5834

1.5942

1.6011

1.6050

1.6119

1.6158

1.6266

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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