Talking Points:
- Yen slumps as global bond yields soar following FOMC rate decision
- New Zealand Dollar hurt as yield advantage shrinks, Aussie holds up
- Upbeat CPI may add fuel to US Dollar rally as Pound ignores BOE
The JapaneseYen underperformed as Asian bond yields followed US Treasury rates higher following the Federal Reserve monetary policy announcement. The FOMC said it now expects to raise the benchmark lending rate three times next year, up from a pair of hikes projected in September.
Higher borrowing costs in the US may boost the cost of capital in general considering that the US Dollar is the undisputed global reserve currency. This narrative seems to be pushing up yields market-wide, spurring carry trade demand and weighing on the go-to funding currency.
The New Zealand Dollar likewise traded lower against a backdrop of narrowing yield spreads between the heretofore go-to carry venue in the G10 FX space and its counterparts. The Australian Dollar managed to hold up following an upbeat set of labor-market figures.
For its part, the greenback continued to climb having posted its largest daily gain in nearly six months in the aftermath of the FOMC meeting as markets outside the Western Hemisphere took their turn to price in the announcement. The upcoming release of November’s CPI data may extend the move further.
The benchmark year-on-year inflation rate is expected to rise to 1.7 percent, the highest in 25 months. An upside surprise in line with a recent outperformance of US economic news-flow may drive continued steepening of the projected tightening path.
The Bank of England policy decision headlines the docket in European hours. Governor Mark Carney and company are widely expected to remain in wait-and-see mode as they monitor the impact of the Brexit referendum on growth and inflation.
On balance, the announcement may mean relatively little for the British Pound unless minutes from the meeting or the voting pattern on the policy-setting MPC committee implies a sense of urgency in countervailing building price pressure. This seems rather unlikely however.
Join our BOE rate decision webinar to follow the announcement and its impact live!
Asia Session
| GMT | CCY | EVENT | ACT | EXP | PREV |
|---|---|---|---|---|---|
| 21:30 | NZD | BusinessNZ Mfg PMI (NOV) | 54.4 | - | 55.1 |
| 21:45 | NZD | Value of All Buildings SA (QoQ) (3Q) | 1.4% | 2.1% | 5.3% |
| 0:00 | AUD | Consumer Inflation Expectation (DEC) | 3.4% | - | 3.2% |
| 0:30 | AUD | Employment Change (NOV) | 39.1k | 17.5k | 15.2k |
| 0:30 | AUD | Unemployment Rate (NOV) | 5.7% | 5.6% | 5.6% |
| 0:30 | AUD | Full Time Employment Change (NOV) | 39.3k | - | 45.7k |
| 0:30 | AUD | Part Time Employment Change (NOV) | -0.2k | - | -30.5k |
| 0:30 | AUD | Participation Rate (NOV) | 64.6% | 64.5% | 64.4% |
| 0:30 | JPY | Nikkei Japan PMI Mfg (DEC P) | 51.9 | - | 51.3 |
| 0:30 | AUD | RBA FX Transactions Government (NOV) | -A$549m | - | -A$450m |
| 0:30 | AUD | RBA FX Transactions Market (NOV) | A$503m | - | A$439m |
| 0:30 | AUD | RBA FX Transactions Other (NOV) | A$34m | - | A$26m |
| 6:00 | JPY | Machine Tool Orders (YoY) (NOV F) | -5.6% | - | -5.6% |
European Session
| GMT | CCY | EVENT | EXP/ACT | PREV | IMPACT |
|---|---|---|---|---|---|
| 8:00 | EUR | Markit France Mfg PMI (DEC P) | 53.5 (A) | 51.7 | Low |
| 8:00 | EUR | Markit France Services PMI (DEC P) | 52.6 (A) | 51.6 | Low |
| 8:00 | EUR | Markit France Composite PMI (DEC P) | 52.8 (A) | 51.4 | Low |
| 8:30 | EUR | Markit/BME Germany Mfg PMI (DEC P) | 55.5 (A) | 54.3 | Medium |
| 8:30 | EUR | Markit Germany Services PMI (DEC P) | 53.8 (A) | 55.1 | Medium |
| 8:30 | EUR | Markit/BME Germany Composite PMI (DEC P) | 54.8 (A) | 55.0 | Medium |
| 8:30 | CHF | SNB 3m Libor Lower Target Range | -1.25% (A) | -1.25% | High |
| 8:30 | CHF | SNB 3m Libor Upper Target Range | -0.25% (A) | -0.25% | High |
| 8:30 | CHF | SNB Sight Deposit Interest Rate | -0.75% (A) | -0.75% | High |
| 9:00 | EUR | Markit Eurozone Mfg PMI (DEC P) | 54.9 (A) | 53.7 | Medium |
| 9:00 | EUR | Markit Eurozone Services PMI (DEC P) | 53.1 (A) | 53.8 | Medium |
| 9:00 | EUR | Markit Eurozone Composite PMI (DEC P) | 53.9 (A) | 53.9 | Medium |
| 9:30 | GBP | Retail Sales Ex Auto Fuel (MoM) (NOV) | 0.5% (A) | 2.0% | Medium |
| 9:30 | GBP | Retail Sales Ex Auto Fuel (YoY) (NOV) | 6.6% (A) | 7.6% | Medium |
| 9:30 | GBP | Retail Sales Inc Auto Fuel (MoM) (NOV) | 0.2% (A) | 1.9% | Medium |
| 9:30 | GBP | Retail Sales Inc Auto Fuel (YoY) (NOV) | 5.9% (A) | 7.4% | Medium |
| 10:30 | EUR | ECB Publishes Allotment of TLTRO-II | - | - | Low |
| 12:00 | GBP | Bank of England Bank Rate | 0.25% | 0.25% | High |
| 12:00 | GBP | BOE Asset Purchase Target (DEC) | 435b | 435b | High |
| 12:00 | GBP | BOE Corporate Bond Target (DEC) | 10b | 10b | High |
Critical Levels
| CCY | Supp 3 | Supp 2 | Supp 1 | Pivot Point | Res 1 | Res 2 | Res 3 |
|---|---|---|---|---|---|---|---|
| EUR/USD | 1.0222 | 1.0395 | 1.0465 | 1.0568 | 1.0638 | 1.0741 | 1.0914 |
| GBP/USD | 1.2224 | 1.2415 | 1.2489 | 1.2606 | 1.2680 | 1.2797 | 1.2988 |
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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