Foreign Exchange - UK Daily Update - Monday, April 22, 2013 7:54 - 0 Comments

World First Morning Update 22nd April: Yen weakens on G20 approval of BOJ plans

The G20 meeting in Washington over the weekend ended with a tacit endorsement of the recent Japanese monetary policy that has caused the yen to lose 11% over the past 3 months, and has the Nikkei 30% higher since the beginning of the year.

The South Koreans were complainants following pressures on its own vital export sector but was only able to get a commitment from the G20 to be “mindful of unintended negative side effects stemming from extended periods of monetary easing”. Finance Minister Aso told us that the other members of the G20 had agreed that the bond buying plan put forward by the Bank of Japan was indeed to combat deflation and not weaken the yen.

Confirmation of the Japanese position does reek of that old issue of nobody liking the new kid in the playground with their new monetary policy toy which finally starts to be working. Japanese inflation has already risen in one sense; the price of a Big Mac in Japan has risen from Y100 to Y120. So maybe it is working!

This has pressed Asian shares higher and USDJPY towards 100.00 overnight with the positivity seeping into European assets as well. This is despite the pig’s ear that the Italian Presidential elections became over the weekend.

President Napolitano, who is 87yrs old, has been asked to serve a 2nd term despite strong criticism from Beppe Grillo’s 5 Star movement which won a quarter of the votes at the general election 2 months ago. Pressure will continue on the parties to try and find a resolution sooner rather than later, although the bond markets continue to push Italian yields lower; this morning the yield on Italian 2yr debt has fallen to a record low of 1.267%.

Friday night’s downgrade of the UK’s credit rating by the rating agency has had very little effect on GBP or UK assets in general, given it was largely priced in following their decision to reassess the rating after last month’s Budget. We now hold AA+ ratings from 2 agencies but this is, and always has been to a large extent, a political issue. Pressure on Osborne will increase if this week’s GDP number (Thursday 09.30) is disappointing and shows an economy in treble-dip recession. Markets are looking for 0.1%; so any growth is expected to be slight.

Unfortunately banks have warned that the Chancellor’s plans to extend and increase the Bank of England’s Funding for Lending Scheme will not be enough to increase the flow of credit to the nation’s small and medium-sized businesses. The plan is due to be extended soon and could be the first extension of UK monetary policy to a more Japanese bent through the summer.

US GDP and European flash PMIs are due this week in what will be an important indicator of whether near term wobbles are exactly that, or whether the macro-economic landscape is indeed worsening.

Have a great day.

View the latest exchange rates and live graphs here.

 

Indicative Rates	Sell	Buy
GBPEUR	1.1660	1.1681
GBPUSD	1.5209	1.5230
EURUSD	1.3032	1.3053
GBPJPY	151.76	151.99
GBPAUD	1.4806	1.4829
GBPNZD	1.8045	1.8068
GBPCAD	1.5603	1.5636
NZDUSD	0.8415	0.8432
GBPZAR	14.08	14.13
USDZAR	9.2606	9.2866
GBPPLN	4.7736	4.7952
EURJPY	130.16	130.45
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