The first of this week’s major central bank policy decisions came out early this morning. Investors had been expecting the Bank of Japan to do something vaguely hawkish, even if it stopped short of actually raising its benchmark interest rate. What the bank gave them was a barely-noticeable semantic tweak.
After a long meeting the BoJ board decided to keep its short term rate at -0.1% for a 31st month and stick to a 0% target for 10-year government bond yields. There was a minor change to the statement’s wording but essentially the BoJ is still trying to get inflation up to 2% (last seen at 0.7%) and it has no better idea of how to go about it. After a volatile few minutes following the announcement the yen drifted lower.
Jointly with the US dollar it was the weakest among the major currencies, falling by 0.2% against sterling. The pound and the Canadian dollar shared the penultimate slot, losing an average of 0.3% to the other nine most actively-traded currencies. With sterling it was most likely the uncertainty about Brexit and Thursday’s Bank of England decision. As for Canada, it is likely that their problem was the story this morning that it has been excluded from trade talks between Mexico and the United States.
Monday’s runaway winner was the Swedish krona, which strengthened by 0.9% against sterling. The Swissy and the Norwegian krone shared bronze and the antipodean dollars tied for fifth. There was no clear theme for the day; in many cases the moves seemed to be motivated by little more than boredom.
At least the krona’s rally had a sound basis. The initial estimate of Swedish gross domestic product in Q2 put quarterly growth at 1.0%, on a level with the United States. Where the US figure had been a mild disappointment, the Swedish number was twice what had been expected.
The antipodeans ended up level-pegging despite the Aussie’s downward drift during the London session. Figures this morning showed a softening of business confidence in New Zealand and a rebound in Australian building permits. Also out overnight was Gfk’s measure of UK consumer confidence. At -10 it was a point lower on the month, a point below forecast and vaguely unhelpful to sterling.
Three to watch
The highlights of today’s agenda are Euroland inflation and second quarter gross domestic product, US inflation and, tonight, NZ employment. There are no important UK ecostats to get in sterling’s way.
The first stab at second quarter GDP in Euroland is expected to show growth unchanged at a quarterly 0.4%. Inflation should also by steady, at 2.0%, and unemployment could have ticked down to 8.3% in June. Another one that should be unchanged is US personal consumption expenditure: the Fed’s favoured measure of inflation is pencilled in at 2.0%.
Yet more stability is expected from NZ employment. The unemployment rate is forecast to have been unchanged at 4.4% in the second quarter, with the participation rate static at 70.8%.