April 28th – The week has seen a number of un-sustained jumps amongst the major currencies as the markets have tried to find direction off second tier economic announcements. However, Ben Bernanke’s testimony to Congress yesterday was sufficient to provide some lasting momentum as speculation that US interest rates would be put on hold sent the other major currencies higher through the session, in turn underlining what really matters to currency traders. However, an overnight meeting of the Bank of Japan’s monetary policy committee saw a unanimous decision to leave interest rates unchanged in a move that will doubtless garner the support of exporters who were worrying about a strong Yen. This stance will likely be short lived as inflationary pressures seem set to build in Japan, especially if numbers such as the recent jump in cars manufactured (up 5.4% year on year) are to be repeated in the months ahead. Attention on yields is now going to shift to Europe – both the ECB and Bank of England meet to discuss interest rates next week – and although opinion as to which direction the respective banks will go next has been very much in focus, any clear consensus has been somewhat lacking. Strong Eurozone economic data is suggesting that we’ll see a rate hike out of the ECB in the not too distant future, but with this news being far from fully priced in for next week, further volatility in EUR/USD is to be expected. Additionally, sentiment is suggesting that UK rates will remain steady until the second half of the year, but on balance the next move for rates here may well be lower. Certainly above 1.80, cable is looking a little overpriced so any renewed suggestion that yields on Sterling are set to fall may well be sufficient to drive GBP/USD lower in due course…
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