JPY weaker as recession confirmed and BOJ intervention rumoured

The GBP/JPY rate is the highest we have seen since 2015 after data was released it showed the Japanese economy as contracted in the last half of 2023 and therefore the economy is technically in recession. GBP/JPY is up to JPY 190.15 this morning and we haven’t seen a level like that since the end of 2015. There are rumours around the markets at the Bank of Japan may step in to buy Yen, so these highs may well be short-lived. And the mere threat of BOJ intervention may be enough for the yen to strengthen as traders and investors take advantage of the remarkably weak levels. If you are a Japanese yen buyer, you may wish to follow suit.

NZ trade deficit exceeds forecasts

NZ posted a trade deficit in January of 976 million Kiwi dollars. That was nearly five times the market expectation and nearly three times the deficit we saw in December. The saving grace in this data is the fact that the annual deficit was smaller than the previous month at NZD 12.5 billion; a continuation of improving data, which hit its worst level in May 2023. So, although the New Zealand dollar weakened a little bit on the announcement it hasn’t moved very far in early trade. The GBP/NZD rate is hovering around NZD 2.0390 and that is roughly where we started the day on Wednesday. We have UK purchasing managers indices today a New Zealand retail sales data overnight tonight. If the forecasts are correct, we should see this currency pair move slightly higher by the start of Friday. However, as we have a meeting by the Reserve Bank of New Zealand on Wednesday, there will be a note of caution in any Kiwi dollar trading. No change is expected from the RBNZ but the tone of their statement will undoubtedly be influential on the value of the NZD.

Fed minutes say no cuts yet

Yesterday afternoon saw the release of the minutes from the last US Federal Reserve Open Market Committee meeting. The notes from that meeting simply confirmed what most in the markets already knew; that the Fed will remain cautious about any pre-emptive interest rate cuts and they are looking for inflation to fall back to their 2% target before acting. That would normally strengthen the US dollar because it maintains the level of yields on US bonds but the dollar has lost a little bit of ground in the last 24 hours. The GBP/USD rate is holding up at $1.2680 and the EUR/USD rate has extended its gains $1.0860. The day ahead brings purchasing managers indices from the EU, UK and US as well as eurozone inflation data. The balance between the various PMIs are most likely to hold sway in terms of where these currency pairs move to through the latter part of the day. As Friday’s data diary is pretty sparse, these numbers will also set the tone for the move into the weekend.