USD and JPY share the lead

4 minute read


With no US economic data of any consequence to guide it, the USD had to rely on past glories and future hopes. Both stood it in good stead. The US economy continues to look better than its peers. The Federal Reserve's 2.25-2.5% funds rate target easily outshines the benchmark interest rates of other G7 central banks, all of which now expect to remain unchanged for the foreseeable future. Canada is the closest competitor at 1.75%.

Looking ahead, tomorrow brings the provisional reading for first quarter gross domestic product. Investors are optimistic that it will confirm annualized growth of 2.1% in Q1. As for today's data, the numbers that matter are March's durable goods orders. A monthly increase of 0.8% is expected.


Whether the euro touched a 22-month low against the USD or the dollar hit a 22-month high is open to debate. On balance it looked more as though investors were embracing the USD than that they were shunning the EUR. Either way, the result was the same: a 0.6% loss for the euro.

No Euroland ecostats were released this morning. The European Central Bank did, however, publish its Economic Bulletin. It was predictably shot through with "slower growth", "global headwinds" and "risks" which "remain tilted to the downside". As an encouragement to buy the EUR it scored few points.


For some reason the Bank of Canada created a brief stir with its interest rate statement. Investors cannot have been surprised that the BoC kept its target for the overnight rate unchanged at 1.75%. They ought not to have been surprised that the bank dropped any suggestion of tighter policy, leaving them to assume that the 1.75% benchmark would continue indefinitely. But investors are conditioned to believe that a more dovish central bank means a lower currency. The CAD dropped an instant half-cent.

Within half an hour it was on its way back up. BoC governor Stephen Poloz said during the Q&A: "if our forecast is right… interest rates are more likely to go up than down". So the BoC is not, after all, pushing for a rate cut. The CAD recovered briefly before relapsing overnight. It is 0.4% lower against the USD.


There were signs of life from the GBP in the early part of the day, following the news that government borrowing was at a 17-year low. It went into retreat at lunchtime and spent the afternoon on the back foot before plodding aimlessly through the night. The pound came under renewed pressure when London opened this morning and it is 0.3% lower on the day.

Although it was not of much lasting help to the GBP, the political picture brightened somewhat on Wednesday when it became clear that the prime minister is not, after all, at risk of being voted out by her own party. Not yet, anyway. There had been a suggestion that the Conservative party might alter the regulation that requires votes of no confidence to be separated by at least 12 months. The backbenchers' 1922 Committee ruled out any change, meaning - at least in theory - that Theresa May's position is secure until December.


The big event in the JPY's day was supposed to be the Bank of Japan's interest rate statement and the governor's subsequent press conference. Predictably, however, it all boiled down to more of the same. But at least the BoJ quantified the "extended period" during which it expects to keep interest rates nailed to the floor. They will remain at "extremely low levels… at least through around spring 2020".

On the surprise scale the statement hardly registered, and financial markets were unmoved. The JPY is unchanged against the USD.

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