USD/JPY Seems To Have Found A ‘Bottom’ Around The 104-105 Level

USD/JPY Seems To Have Found A ‘Bottom’ Around The 104-105 Level

Market movers today

There are no significant market movers today. We have a few speeches from Federal Reserve members as well as ECB members.

Focus in the market will continue to be on the risk of a trade war between the US and China.

On top of the tariffs, the US Treasury will sell a record amount of T-bills and Treasury bonds this week as they will sell USD294bn.

Selected market news

The negative sentiment in the equity market continues this morning with a decline in most Asian equity markets. The focus is still on the risk of a possible trade war with China. However, the US and South Korea reached an agreement on trade as well as on the tariffs over the weekend. Hence, US Treasury Secretary Steven Mnuchin said that he was optimistic that an agreement between the US and China could be reached.

In the currency markets, USD/JPY seems to have found a ‘bottom’ around the 104-105 level this morning, with the yen trading stronger for most of March.

The USD Libor fixings continued to rise last week. One of the drivers for the increase in the USD Libor has been the increased supply of US T-bills and with the record sale of T-bills and Treasury bonds from the US Treasury department this week, the risk is that the USD Libor will continue to rise this week.

Last Friday, the central bank of Russia (CBR) cut its key rate by 25bp as we expected with the majority of both Bloomberg’s and Reuters’ consensus. Approximately one third of interbank traders presumed a 50bp cut. In its statement, the CBR emphasised sustainably low inflation (2.2% y/y currently) and decreasing inflation expectations. Yet, the CBR expects inflation to accelerate by end-2018 to 3-4%, anchoring around the desired target of 4% in 2019. The CBR communicated clearly that it will continue to cut rates to achieve the neutral rate in 2018, which is somewhere between 6-7%. Given the current path, we expect the key rate to fall to 6.25% by end-2018. RUB’s reaction to the decision was neutral as we expected and the central bank governor’s dovish tone at the press conference did not spark any turbulence. Looking forward, we see geopolitical risks being major movers for the RUB in both directions.

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