Global FX: Sterling, Euro Climb On Yen's Slide

The pair settled the week in positive territory, supported by the release of inflation data out of Germany, as well as the surge higher by EUR/JPY, which itself was driven by broad-based JPY weakness, which was evident throughout the week. So much so that the JPY cross erased good sized barriers above 139.00 level and advanced to its highest level since October-2008. Reports mid-week that the ECB is looking at introducing an LTRO in order to help promote bank lending has failed to weigh on EUR, since such a move will be less damaging for the currency when directly compared to the impact that an introduction of negative deposit rates will have on the general sentiment towards the currency. In other euro-zone related commentary, German Chancellor Merkel and SPD reached grand coalition agreement, according to CDU's Grosse-Broemer. There were also earlier reports that the new German Cabinet will not be named until mid-December according to the DPA.

GBP/USD
Similarly to EUR/USD, the pair finished the week with solid gains, supported by a weaker USD and also broad based JPY weakness, which saw GBP/JPY rise to its highest level since October 2008. The pair also benefited from the decision by the BoE to terminate FLS mortgage incentives in 2014. The move higher by the pair came in spite of the fact that BoE's Carney said that FLS changes won’t impact monetary policy, which also resulted in short-sterling strip coming under selling pressure as market participants focused on comments that UK house-price inflation is gaining momentum. Looking ahead for the pair, one of the key releases out of the UK will be the BoE rate decision on Thursday, however, there are no expectations for a change in the central bank’s policy.

USD/JPY
Broad-based JPY weakness was evident throughout the week, which in turn saw EUR/JPY and GBP/JPY advance to its highest levels since October 2008, while the major pair itself advanced to its highest level since mid-May. This week saw the pair erase barriers at 101.00 and also 102.00 levels, while EUR/JPY erased barriers at 138.00 and also 139.00 levels. In terms of Japan specific commentary, the minutes from the most recent BoJ policy meeting stated that most members said 2% inflation is likely in the second half of the projection period. Also, BoJ board member Shirai commented that the BoJ should stick to 2% price target now, instead of setting target in a range and that targeting an inflation range is an option once CPI tops 1%. Of note, analysts at Credit Suisse see the pair trading at 110.00 in 3 months and at 120.00 in 12 months.