Yen Aims to Extend Gains, Pound Drops Before Super Thursday

2017-01-30 07:51:00

Talking Points:

Japanese Yen soars as sentiment sours across financial markets
British Pound down as markets bet on dovish “Super Thursday”
Euro may not find lasting support as German CPI hits 2 percent

The Japanese Yen outperformed as market sentiment soured in Asian trade, offering support to the standby anti-risk currency. More of the same looks to be brewing ahead. European shares are firmly in the red as markets in the region come online and S&P 500 futures are pointing decidedly lower, hinting that the going will not get any easier after the opening bell on Wall Street.

The preliminary set of German CPI figures is expected to show headline on-year inflation rose to 2 percent this month, slightly exceeding the ECB’s target. The recovery in pricing power has mirrored that of crude oil since early 2016 but priced-in inflation expectations are stuck in familiar ranges, hinting the central bank is unlikely to change its dovish posture. This may mean the data will not offer the Euro much of a lift.

The British Pound is facing broad-based selling pressure in a move that may reflect pre-positioning ahead the so-called “Super Thursday” later in the week. The Bank of England will publish an updated quarterly inflation report and Governor Mark Carney will hold a press conference to explain its contents. The minutes and outcome of its latest policy meeting are also due.

Traders may be scaling back exposure to the UK unit amid speculation that the central bank will maintain a dovish bias despite recently rosy growth and inflation data, citing lingering Brexit-related worries. BOE officials have struck a cautious tone despite the economy’s apparent resilience since the Leave campaign triumphed in last year’s EU membership referendum.

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