March 19, 2024

“The Bank of Japan’s historic exit from negative interest rates overnight has dominated the headlines this morning, but the yen has suffered significantly on the tentative and dovish tone struck by officials. The other highlights today include an Australian rate decision, Canadian CPI, and US housing data ahead of tomorrow’s data-packed diary and the Fed decision.”

Sam Cornford – Head of Trading

Main Headlines

In a historic shift, the Bank of Japan exited negative interest rates for the first time in eight years, with an aim to keep its new unsecured overnight call rate within the 0.0-0.1% range. The Japanese central bank also dissolved its Yield Curve Control policy and reference bond yield caps and abandoned efforts to buy ETFs and other risk assets. But a cautious tone was retained, and policymakers vowed to keep policy in stimulative territory in an effort to guarantee sustained momentum in domestic inflation.

The British government unveiled plans on Tuesday to introduce an independent football regulator aimed at overseeing the sport and promoting financial stability. This proposed regulator, independent of both government and football authorities, would wield the authority to impose fines of up to 10% of a club’s turnover for breaches of financial regulations.

GBP

Sterling has slid to a two-week low against the dollar this morning after steadily drifting lower through the early stages of the week. The pound is likely to stay on hold for today except for on the crosses, but is in for a big morning tomorrow with the February CPI release, which is expected to fall from 4.0% to 3.5% and provide the Bank of England with its final and most important clue before it releases its policy statement on Thursday afternoon – a consensus figure should be just strong enough to keep the BoE’s messaging on hold later in the week.

EUR

The slow crawl higher in US yields and the dollar has dragged the euro downwards around 0.3-0.4% since the turn of the week. The ZEW economic sentiment survey this morning is expected to inch higher for both Germany and the wider Eurozone, although the result is unlikely to have a significant impact on the ECB’s policy path and therefore on the euro. Thursday’s PMIs are front of mind for euro investors, alongside rate decisions in the UK and US.

USD

The dollar index has surged to a two-week high as rallying short-term bond yields and receding expectations for rate cuts continue to unwind much of the Powell-induced weakness from earlier in the month. We get some building permits and other housing data this afternoon, but tomorrow’s Fed decision and rate projections are the clear focus for markets that are grasping for certainty on the pace and timing of rate cuts later in the year. The greenback received a leg up overnight from falls in the Japanese yen and the Australian dollar, the first of which suffered from the cautious stance that accompanied the exit from negative interest rates. The Aussie, meanwhile, sank by 0.7% as the Reserve Bank of Australia held rates at 4.35% and cooled its bias towards further tightening, saying only that it would not rule anything ‘in or out’. USD/CAD should be the most volatile pair this afternoon, with Canadian headline CPI set to reaccelerate from 2.9% to 3.1%.

Markets

Japanese government bond yields fell and the Nikkei surged 0.7% despite the BoJ’s rate hike, as the priced-in scenario was overshadowed by comments that policy would remain accommodative for some time. US and European stocks drifted higher in a quiet session yesterday while the UK’s FTSE 100 moved lower.

Main Economic Events (All Times CET)

Bank of Japan Rate Decision
4:30am: Reserve Bank of Australia Rate Decision
11:00am: Eurozone ZEW Economic Sentiment
1:30pm: Canadian CPI
1:30pm: US Building Permits

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