USDJPY Declines on FED Comments, Sterling Steady Ahead of Inflation Report - 7.8.2013

The US dollar is losing ground against the Japanese Yen as equities were under pressure on comments that FED would reduce asset purchase facility. In addition the Bank of Japan starts today its two day meeting and is mostly expected to maintain the same course. US indices closed lower last night with Asian indices following the same direction, NIKKEI 225 dropped substantially, by 4.00% closing below 14,000, Hang Seng also declined by 0.93%. As a virtue of that traders were abandoning equities and placing their money in safer places like Yen. Earlier on Wednesday we saw the USDJPY breaching key support at 97.57, triggering more sell orders and driving the pair to more than a month low at 96.82.

With eyes now turning to Bank of England Governor, Mark Carney’s first speech and Inflation Report, the British pound is in steady trading between 1.5390/1.5315 after advancing from 1.5102 to its recent cap.

In the previous month UK has released a series of stronger than anticipated data like growth in 2nd quarter was 0.6%, PMI improved greatly in July against June readings. Moreover, yesterday releases indicated upbeat statistics for UK Manufacturing and Industrial production while inflation stands at 2.9% still well above BOE target at 2.0%. Thus we do not expect steps toward further easing of monetary policy since growth is on the right path and inflation remains high.

Nonetheless, we are eager to know about Mark Carney’s plans on forward guidance and thresholds to be set for stepping back of the current highly accommodative monetary stance. The GBPUSD is currently near a key resistance around 1.5410 and is likely to advance above that should the BOE Governor sound less dovish than expected given recent improved macroeconomic data.