Overview on the Market

USD-JPY climbed higher after BoJ stuck with its ultra-easy monetary policy

The increase of 0.5% in USD-JPY las Friday can be considered restrained compared to the 2% rise that occurred after the meeting on January 18th. It is also modest in light of the fact that Japan's 10-year swap rates fell from 87bp to 77bp before increasing slightly by 2bp last Friday morning.

Additionally, 10-year JGB (Japanese Government Bonds) yields have dropped below the 50bp limit for the first time in a month. The decline in US yields last Friday has likely helped stabilize USD-JPY to some extent due to concerns about stress in the US banking sector.

As a result, the historical correlations between US yields, JPY, and the VIX may behave more in line with one another. I anticipate that USD-JPY will continue to experience high volatility as we await significant US data releases this Tuesday.

Furthermore, Japan will release their February trade data this week, and we may see the first round tabulation of Shunto wage negotiations.

GBP-USD is higher this morning, boosted by a better expected GDP print for January

The British economy has exceeded market expectations by experiencing a 0.3% MoM growth instead of the predicted 0.1% increase, partially due to the return of pupils to school following industrial action in December.

Although manufacturing and construction activity unexpectedly decreased, the growth in the services sector helped offset this decline. This data suggests a decreased likelihood of recession, and a few economists anticipate that Q1 GDP forecast may exceed their initial prediction of a 0.3% QoQ contraction.

Over the last month, UK activity has consistently surpassed expectations while inflation data has remained stable.

This welcome growth and inflation improvement has caused the GBP to strengthen and approach a comfortable zone above 1.20 against the USD and EUR. Although the market has already accounted for a 25bp hike at the March meeting, upcoming releases regarding the UK labour market, CPI, and the Budget may influence the decision-making process leading up to the meeting.

Amid the fixation on the US employment report, followers of USD-CAD will need to keep one eye on the Canadian data also

USD-CAD has reached a new YTD high despite a 5bp increase in Canadian peak rate expectations, which are keeping pace with the shift in US peak rate expectations.

The differential in 2-year yields has widened throughout the week, even after last Friday night's partial reversal caused by US banking concerns. As a result, USD-CAD has followed this upward trend. It is uncertain whether Canada's employment data can reverse this move, and it will depend largely on the outcome in the US. In a speech given last Thursday, Senior Deputy Governor Carolyn Rogers of the BoC stated that Canada's economy is still experiencing excess demand, and the labour market is surprisingly tight. She also noted that currency weakness can potentially cause upward pressure on inflation, which would need to be incorporated into forecasts if it were to occur. (Bloomberg)

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