· The Japanese yen rallied on Thursday after the Bank of Japan kept interest rates on hold, while the dollar struggled to move higher despite the Federal Reserve offering mixed signals about the path for further easing.
The yen rose to as high as 107.79 yen before settling at 108.06, up 0.4% on the day.
The dollar dipped slightly against a basket of currencies, as it struggled to gain despite a more hawkish than forecast tone from Wednesday's Federal Reserve meeting.
On Thursday the dollar was down 0.1%, its index at 98.481 , while against the euro it was 0.1% lower at $1.1037 .
· Analysts still see the dollar holding up well despite the reduced likelihood of more rate cuts.
"In the short term, this hawkish cut should still see the dollar well-bid, given that the path of interest rates outlined by the Fed is not close to that priced into the markets," said John Veils, Americas FX and macro strategist at BNY Mellon.
· Sterling was flat at $1.2468. British retail sales numbers are due at 0830 GMT, and the Bank of England policy announcement at 1100 GMT.
· An overwhelming majority of analysts see the Bank of England holding the benchmark interest rate at 0.75 percent as uncertainty around Brexit continues to cloud the future of the United Kingdom’s economy.
Since October, year-on-year core CPI has been slipping below the central bank’s two percent in large part due to Brexit turmoil and trade wars undermining consumer/business confidence. But the BoE has to be careful not act prematurely the uncertainty about the EU-UK divorce looms over the heads of policymakers. It is unclear what the economic impact of what either scenario could be and therefore warrants a cautious approach.
· U.S. and Chinese deputy trade negotiators were set to resume face-to-face talks on Thursday for the first time in nearly two months as the world’s two largest economies try to bridge deep policy differences and find a way out of a bitter and protracted trade war.
The negotiations on Thursday and Friday are aimed at laying the groundwork for high-level talks in early October that will determine whether the two countries are working towards a solution or are headed for new and higher tariffs on each other’s goods.
· Any recession that happens in the United States would likely be “shallow” given the current state of the country’s economy, according to Tom Finke, chairman and CEO of investment management firm Barings.
“From the U.S. point of view and the U.S. economy, if we’re talking about a recession in the U.S., the consumer and growth industries like (technology) have offset declines in ... other industries,” Finke told CNBC’s Oriel Morrison at the Milken Institute Asia Summit in Singapore.
“We still have tight labor markets, you still have growth industries,” Finke said. “It’s not the typical, if you will, cyclical slowdown where you have ... a big long decline going into it ... We’re actually growing still.”
· Uncertainty surrounding the U.S.-China trade war is hitting global growth, and that could be driving the slowdown more than the tariffs themselves, former U.S. Deputy Treasury Secretary Sarah Bloom Raskin told CNBC on Thursday.
“One of the things actually weighing on the U.S. economy as well as the world economy really is the uncertainty regarding these trade tensions, it’s very difficult to know what the end game is,” said Ruskin, who was also a U.S. Federal Reserve governor between 2010 to 2014 under the Obama administration.
· With economic growth slowing down, China needs to increase productivity to boost its economy — but the country hasn’t been very successful at doing that so far, according to a report by the World Bank and the Chinese government.
China’s economy has long relied on high levels of investments and an expanding labor force for growth. Those economic drivers are running out of steam, and Chinese authorities have identified innovation and productivity as the next growth sources.
But, productivity growth in China “has been slowing since the global financial crisis and has remained relatively low,” according to the report, jointly released Tuesday by the World Bank, China’s Ministry of Finance and China’s Development Research Center of the State Council.
Estimates of China’s growth in total factor productivity moderated from about 3.51% in the 10 years before the global financial crisis to 1.55% in the decade post-crisis, the report said. Total factor productivity measures economic efficiency and innovation.
· On Thursday, the Bank of Japan (BOJ) monetary policy board concluded its 2-day July policy review meeting and decided to leave its monetary policy settings unadjusted, holding rates at -10bps while maintaining 10yr JGB yield target at 0.00%.
The central bank left its forward guidance unchanged, adopted in April that said "will keep very low-interest rates levels for an extended period of time at least through around spring 2020."
The Yen failed to react to the BOJ announcement, keeping the USD/JPY pair in a familiar range around 108.15 region, -0.25% on the day.
· Reuters reports the following headlines following the Bank of Japan’s (BOJ) announcement.
BOJ maintains a pledge to ease policy without hesitation if there is risk economy could lose momentum to hit price goal.
Japan’s economy expanding moderately as a trend, keeps view unchanged.
Need to pay closer attention to chance momentum to hit price goal will be lost.
Will re-examine economic, price developments at next policy meeting when it updates forecasts.
Kataoka says desirable to strengthen monetary easing by lowering short term interest rates.
Kataoka says possibility of year-year rate of change in CPI increasing towards 2% going forward was low at this point.
· Japanese Economy Minister Yasutoshi Nishimura said on Thursday that the government was prepared to help small businesses and farms depending on the outcome of trade talks with the United States, expected to be finalised and signed next week.
Full details of the agreement have not been disclosed. But Japan is expected to agree to cut tariffs on imports of U.S. beef and pork to within levels granted to signatories of the multilateral Trans-Pacific Partnership (TPP) pact, officials have said.
· Oil prices edged higher in Asian trade on Thursday after days of turbulence, with markets soothed by Saudi Arabia’s pledge to restore full production by end-September at facilities knocked out in drone and missile attacks last weekend.
Brent crude futures LCOc1 rose 24 cents to $63.84 a barrel by 0634 GMT, while U.S. West Texas Intermediate (WTI) crude CLc1 was up 21 cents to $58.32 a barrel.
· U.S. Secretary of State Mike Pompeo said the United States supports Saudi Arabia’s “right to defend itself” and said Iran’s behavior would “not be tolerated” in a meeting with Crown Prince Mohammed bin Salman, according to a statement on his official Twitter account on Thursday.
Pompeo condemned the attacks and supported Saudi Arabia’s call for international experts to come to the country to further investigate, Saudi Arabia’s state news agency SPA said in a separate report on the meeting.
· The Saudi ambassador to Germany said on Thursday all options were on the table in retaliation to attacks on Saudi Arabia’s oil facilities over the weekend that the kingdom has blamed on Iran.
Asked about the possibility of a military strike against Iran, he said: “Of course everything is on the table but you have to discuss that well,” Prince Faisal bin Farhan al-Saud told Germany’s Deutschlandfunk radio.
“We’re still working on where they were launched from but wherever they came from, Iran is certainly behind them as Iran built them and they could only be launched with Iranian help,” he said.
Reference: Reuters, CNBC, Daily FX
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