Sterling and Yen Key Movers

Owing to conflicting impulses, the US dollar is mixed today.  Sterling and the yen are the key movers and in opposite directions.  The main impetus behind sterling's advance are the minutes from the BOE's MPC meeting where the dove Posen capitulated, leaving only Miles in favor extending gilt purchases and even then his vote appeared to be finely balance, suggesting he will give it up as well.  This supports our expectation that when the current program is over next month that the BOE, like the ECB and Fed, will adopt a wait-and-see stance.  

The less dovish minutes then propelled sterling toward, but not through the $1.60 level.  Sterling sis more pronounced on the crosses.  The euro fell through the GBP0.8200 level for the first time since 2010.  The break has been sufficient to trigger the barriers and stops believed to have be placed there, but the momentum is stalling a bit near GBP0.8180, though near-term potential extends toward GBP0.8140.

UK employment data was also seen as a supportive developments.  The unemployment rate stands at 4.9% in March, which is where the revision put the rate in Feb as well, down from 5.0%.  For the record the ILO calculation puts the unemployment rate at 8.3% from 8.4%, which while above the national calculation, is still lower than most countries in the euro zone.  

 Jobless claims were more mild than expected, rising 3.6k not the 6.0k the consensus expected and the claims in Feb were revised to 4.5k from 7.2k.   Still the slack in the labor market is evident by the earnings data, which is reported with an additional month lag.  In Feb then, the average earnings rose 1.1% on a 3-month year-over-year basis, down from 1.3%. 

With the CPI coming in higher than expected earlier this week, stagflation may be an increasingly fair characteristic and something that needs to be sensitive to going forward.  

Separately, and of little immediate consequence, HSBC announced it would launch a Chinese renminbi bond in London, the first outside of China proper (includes Hong Kong).  Although the timing was unpredictable, it was generally expected that London would indeed become a key offshore center for the yuan.  And so it begins.  

While sterling is firm, the yen is weak.  The downtrend in the dollar since mid-March against the yen has run its course with the JPY80 level holding in recent days.  The recovery in equities, helped by constructive US earnings reports, a pullback in Spanish and Italian yields provide a conducive international environment for yen weakness.  

At the same time, forecasts for Japan to report a trade deficit early Thursday in Tokyo coupled with anticipation of the BOJ announcing more asset purchases next week are domestic impulses that weigh on the yen.  The JPY81.80-JPY82.20 is the next reasonable objective.     One noteworthy aspect of yen weakness today is that it is not coinciding with strength in the dollar-bloc currencies, like the Australian dollar, which is a favorite carry and momentum play, though not today.   Following yesterday's more constructive/less dovish Bank of Canada comments, the Canadian dollar continues to outperform within the dollar-bloc.  

Sweden's Riksbank kept rates on hold.  This is not surprising, but there were some positioned for a surprise cut, especially after softer industrial production and especially orders data.  The krona has been bought against Norway, the euro and the dollar.