GBP optimism ahead of Brexit meeting
By Vincent-Frédéric Mivelaz
Ahead of today’s meeting in Salzburg, sterling is strengthening, currently trading along 1.3205 USD and approaching the 1.3215 range in the short-term. At stake is whether the pound will benefit or not. This depends on EU’s view: many disparities remain, and the October deadline looms. We think the markets might be over-optimistic. The Bank of England will watch closely. Inflation is at its highest pace in 18 months, which could trigger a rate hike.
Bank of Japan sits it out
By Arnaud Masset
The BoJ kept interest rates unchanged at its September monetary meeting. The policy balance rate was maintained at -0.1%, while the 10-year yield target was left unchanged at 0%. The yen was little changed after the announcement, with USD/JPY trading sideways around 112.35. The currency pair has traded in a tight range since the beginning of the summer, following Donald Trump’s decision to ignite a trade war with its main trade partners.
The US is a key market for Japan, especially for the auto industry that accounts for more than 33% of exports to the US. The trade diverts attention from the country’s anaemic inflation, nothing close to BoJ’s 2% target. In July, the core measure printed at 0.8%. August inflation figures are due for release next Friday. Overall, the bank has no choice but to maintain quantitative easing. Divergence with the US Federal Reserve will accentuate, pushing USD/JPY to the upside – as long as Trump does not create too much trouble on the geopolitical scene. The yen is protected by its safe-haven status: investors have every reason to stay long JPY.
Stronger loonie as NAFTA talks resume
By Vincent-Frédéric Mivelaz
The Canadian dollar continues to strengthen, pushed by higher expectations of North American Free Trade talks. USD/CAD is trading lower at 1.2948 and weakening since the beginning of the week (-0.68%). The pair is expected to approach the 1.2930 range in the short-term. Renegotiations are starting on a positive note today, as Canada’s Prime Minister Justin Trudeau hinted that a win-win agreement was likely. Continued US-China spats are CAD positive, as they push US President Trump to avoid additional trade confrontations. Still, time is ticking. An agreement must be signed by end September.