USD/JPY
Overnight the USD/JPY surged higher following a 0.07% move higher in the Dollar Index which subsequently weighed on USD pairs, with the USD/JPY consequently breaking above its August highs to print its highest level since January after taking out touted option barriers at 104.50. Strength in the USD/JPY was also attributed to larger than usual buying at the Tokyo fix. With newsflow particularly light from Japan overnight, this large move in the pair provided much of the direction for the USD/JPY as it headed towards the 105.00 handle. The pair eventually broke above the 105.00 level after the USD index broke above 83.00 for the first time since July, with RANsquawk sources reporting exporter offers heading into the handle and 430mln worth option expiries ahead of the NY cut. Looking ahead, attention for the pair will turn towards the BoJ rate decision where the central bank are expected to maintain their current monetary policy programme despite the recent deterioration in the Japanese economy.
GBP/USD
The GBP/USD was one the session’s laggards from the get-go with RANsquawk sources reporting that a UK clearer was selling the pair since the open. Furthermore, the latest YouGov poll indicated growing momentum for the ‘yes’ vote in the Scottish referendum, thus raising concerns over the possibility of an independent Scotland which subsequently placed further pressure on the UK currency. This move also came ahead of the UK construction PMI release with expectations of a fall from 62.4 to 61.5 following yesterday’s particularly underwhelming manufacturing PMI release. However, the data point exceeded the top end of analysts’ expectations by coming in at its highest level since January (64.0) and thus presented the pair with a fast-money move higher of around 15 pips. This move saw a modest trimming of the earlier losses but was not enough to lift the pair out of negative territory. Looking ahead, all eyes for the UK will be firmly placed on the BoE rate decision, although expectations are for the BoE to once again refrain from lifting rates.
EUR/USD
In a similar nature to other major currencies, the euro was vastly out-muscled by the stronger USD with a lack of major economic commentary or tier 1 data to slow down the momentum to the downside as the pair slipped to its lowest level since Sep’13. Nonetheless, the move to the downside was eventually halted amid gains in the EUR/GBP following the broad-based GBP weakness, with the EUR/USD finding support at the psychological 1.3100 handle where there was also said to be USD 495mln worth of option expiries at the NY cut. Thereafter, the EUR/USD saw a modest cross-driven move higher and managed to pare a large amount of the earlier losses. Looking ahead, as is to be expected, all eyes will be on the ECB rate decision, with speculation continuing to mount over whether or not the governing council will reveal any further monetary stimulus, although market consensus is for the ECB to keep their current interest rates on hold.