FRX: Yen Selling May Accelerate as Focus Turns to US ISM Report
The Japanese Yen edged lower in Asian trade after January’s Consumer Price Indexfigures showed deeper deflation than economists expected, with the headline year-on-year measure showing a drop of 0.3 percent. The outcome reinforced hopes for a more aggressive stimulus push from the Bank of Japan after vocally dovish Asian Development Bank President Haruhiko Kuroda was formally nominated to take over as Governor yesterday. The Nikkei 225 benchmark stock index advanced, reinforcing downward pressure on the safety-linked currency.
Looking ahead, all eyes are on February’s US ISM Manufacturing gauge. Consensus forecasts point to print at 52.5 compared with 53.1 in the prior month, marking a slowdown in factory-sector activity. US economic releases have conspicuously improved relative to expectations since the beginning of last month (according to data from Citigroup). A similar result this time around may help to relieve fears about the onset of “sequester” government spending cuts due to trigger today and threatening to undermine the recovery. This will probably bode well for risk appetite, sinking carry-funding currencies like the US Dollar and Yen against their top counterparts. USDJPY itself seems likely to rise given the greenback’s slight yield advantage.
The British Pound is facing heavy selling pressure in early European trade in the wake of a disappointing Manufacturing PMI release. February’s report showed factory-sector activity unexpectedly contracted at the fastest pace in four months. Forecasters were penciling in a narrow acceleration in growth before the data crossed the wires. The outcome bolstered expectations of a dovish turn at the Bank of England, with Sterling sinking alongside UK 2-year bond yields. We continue to hold short GBPUSD.
