Global FX: GBP Rallies On Forecast

The pair finished the session higher after Germany's Bundesbank said that it expects the German economy to return to normal, amid steady growth rates in H2, adding that a rate hike is possible if inflation pressure emerges. Hawkish tone saw the 1y/1y EONIA forward rate advance back into positive territory, with EUR also bid across the board. The move higher came in spite of the fact that market participants remained firmly focused on the Fed, with yields higher as a result, ahead of the release of the minutes from the most recent FOMC meeting. Looking elsewhere, even though NE/GE 10s widened following press reports citing analysts at Moody’s that the Netherlands's credit rating may be cut if state debt doesn't come down within next 3-to-4 years, EUR was little impacted by the news. On a side note, a member of Merkel’s CDU party, Fuchs, said that Greece may need to be given more time, but will probably not need another haircut.

GBP/USD
The pair settled higher and GBP trade-weighted index (TWI) rose to its highest level in seven months, supported by more positive macroeconomic commentary regarding the economic recovery in the UK. This time by the CBI, which raised its forecast for UK economic growth this year to 1.2%, double the pace predicted by Chancellor in his March Budget -- as the business lobbying group cited mounting confidence across the British economy. Elsewhere, according to Rightmove, record low mortgage rates, government lending incentives and rising optimism in Britain's economic recovery have fuelled a marked pick up in house price inflation in recent months. The rally has been most marked in London where prices are up 10.2% on the year.

USD/JPY
Even though the latest trade data showed that the trade deficit was the third largest for any month -- marking the 13th straight month of expansion for the first time since 1979 -- the pair finished the session higher amid ongoing rate differential flows ahead of the FOMC meeting minutes release. Higher rates encouraged further rate differential flows which supported USD/JPY, which edged back into positive territory and looks set to make a test on the 50-DMA line at 98.33. In terms of technical levels, supports are seen at 97.05/00 and then at the 61.8% retracement of the 95.81 to 98.66 move at 96.90. On the other hand, resistance levels are seen at the Kijun-Sen line at 98.43, 98.66 and then at 98.76.