Market Insight

The latest analysis of popular markets from our team of industry experts.

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LCG TV: Yen & pound to stay in focus

Last week in FX, the yen and the pound have been the major talking points, and will remain in the headlines and on the agenda of traders through to next week.

Japan will open the week with preliminary manufacturing PMI figures from August. Japan’s manufacturing sector is in the contraction zone, which means below the 50 threshold. If the data hints at a deepening contraction among Japan’s manufacturers, we could see the expectations of a dovish Bank of Japan resurfacing, yet the sell-off in yen could remain limited as the markets have lost their faith in the BoJ. 

On Friday, Japanese inflation figures will certainly disappoint with a further contraction in the deflationary territory. The CPI ex-fresh food, the one closely monitored by the Bank of Japan, is expected to have retreated at the pace of 0.4% on yearly basis.

In the US, the durable goods orders are expected to recover from June’s disappointing 3.9% monthly contraction to a better looking 3.5% in July. The second quarter GDP growth could however be revised lower to 1.1% on annualised basis, from 1.2% printed previously. If we do not see any major surprises on the data front, the expectations of a Fed rate hike will remain unchanged. The market gives a 20% chance for a September rate hike and less than 50% for a December rate hike.

Finally it has been quite a busy week for the FTSE and the pound. Next week’s UK Q2 GDP should define whether or not the pound can continue surfing on this positive trend as there is room for a further recovery given how short the market went following the Brexit vote. We will be closely monitoring the UK's trade performance and business investments, as any weakness in these ingredients could bring forward the Brexit fears, and re-pressure the pound.