Yen Rebounds on Intervention, Swiss Franc Tumbled after SNB

Extreme volatility was seen in the markets in the past 24 hours. Yen rebounds broadly today after Japan confirmed that “decisive” currency intervention was made. That came after BoJ stood pat and pledged to keep rate at low level. Swiss Franc was sold off sharply after SNB hiked 75bps, but hinted at the possibility of a pause. Sterling is mildly firmer after BoE delivered 50bps rate hike, with split votes among policymakers. For now, Yen is the strongest one for the week, followed by Dollar, and then Aussie. Kiwi is still the worst, followed by Swiss Franc and Euro.

Technically, it’s still a bit early to conclude that Yen is reversing course. A focus is on USD/JPY’s reaction to 139.37 resistance turned support. As long as this level holds, there is chance of another take on 1998 high at 147.68. However, sustained break of 139.37 will argue that a medium term top was already formed and deeper correction could be seen back towards 130.38 support as traders unwind positions.

In Europe, at the time of writing, FTSE is down -0.28%. DAX is down -0.71%. CAC is down -0.77%. Germany 10-year yield is down -0.0137 at 1.878. Earlier in Asia, Nikkei dropped -0.58%. Hong Kong HSI dropped -1.61%. China Shanghai SSE dropped -0.27%. Singapore Strait Times rose 0.04%. Japan 10-year JGB yield dropped -0.0163 to 0.245.

US initial jobless claims rose to 213k, below expectation

US initial jobless claims rose 5k to 213k in the week ending September 17, below expectation of 220k. Four-week moving average of initial claims dropped -6k to 217k.

Continuing claims dropped -22k to 1379k in the week ending September 10. Four-week moving average of continuing claims dropped -8k to 1405k.

BoE hikes 50bps, 3 members want 75bps, one want 25bps

BoE raises Bank rate by 50bps to 2.25% as widely expected. The voting was not unanimous, with five MPC members Andrew Bailey, Ben Broadbent, Jon Cunliffe, Huw Pill, and Silvana Tenreyro, voted for the decisions. Three members, Jonathan Haskel, Catherine L Mann and Dave Ramsden voted for 75bps hike. One member, Swati Dhingra, voted or 25bps hike.

The Committee voted unanimous to reduce the stock of purchased government bonds by GBP 80B over the next 12 months, to a total of GBP 758B, as set out in August meeting minutes.

BoE also said that the MPC will consider and make decision on the Bank Rate “at each meeting”. The scale, pace and timing of any further changes will reflect the assessment of economic outlook and inflationary pressures. It maintain the pledge to “respond forcefully” if outlook suggests “more persistent inflation pressures”.

SNB hikes 75bps, signalling possibility of a pause

SNB raises policy rate by 75bps to 0.50% as widely expected, to counter “renewed rise in inflation pressure”. It “cannot be ruled out” that further rate hikes will be “necessary”. The reference to the time of “in the foreseeable future” was dropped.

SNB expects that inflation is “likely to remain at an elevated level for the time being”. Based on the assumption that policy stays at 0.50% over the entire forecast horizon, inflation will peak at 3.4% in Q3, and stay slowing from Q2 2023 to 1.6% in Q2 2024. Inflation will average 3.0% in 2022, 2.4% in 2023, and then 1.7% in 2024.

Regarding the economy, SNB expects GDP growth of around 2% this year, roughly 0.5% lower than the last monetary policy assessment. Uncertainty remains high and the biggest risks are a “a global economic downturn, a worsening of the gas shortage in Europe and a power shortage in Switzerland”.

Yen rebounds as Japan confirmed decisive intervention action taken

Yen reversed earlier decline and rebounded strongly, after a top currency diplomat confirmed that the government have intervened in the foreign exchange market for the first time since 1998. Masato Kanda, vice finance minister for international affairs, told reporters, “we have taken decisive action” on in the markets.

Finance Minister Shunichi Suzuki declined to disclose how much authorities had spent buying yen and whether other countries had consented to the move. But Kanda said Japan has “good communication” with the US.

BoJ stands part, interest rate to remain at present or lower levels

BoJ kept monetary policy unchanged as widely expected. Under the yield curve control framework, short-term policy interest rate is held at -0.10%. BoJ will continue to purchase Japanese government bonds, without setting an upper limit, to keep 10-year JGB yield at around 0%. Also, BoJ will offer to purchase 10-year JGBs at 0.25% every business day through fixed -rate purchase operations, to cap the upside. These decisions were made by unanimous vote.

BoJ also pledge to continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control to achieve 2% price target, “as long as it is necessary for maintaining that target in a stable manner”. The bank will not hesitate to take additional easing measures if necessary”. It expects short- and long-term policy interest rates to “remain at their present or lower levels”.

Governor Haruhiko Kuroda confirmed that “There’s absolutely no change to our stance of maintaining easy monetary policy for the time being. We won’t be raising interest rates for some time.”

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9623; (P) 0.9662; (R1) 0.9702; More

Intraday bias in USD/CHF stays on the upside for 0.9868 resistance first. Firm break there will argue that larger up trend is ready to resume through 1.0063. Overall, the corrective pattern from 1.0063 high could still extend. Below 0.9619 minor support will turn bias back to the downside for 0.9478 and below.

In the bigger picture, current development suggests that up trend from 0.8756 (2021 low) is still in progress. Sustained break of 1.0063 will target 100% projection of 0.9149 to 1.0063 from 0.9369 at 1.0283, and then 1.0342 (2016 high). For now, this will remain the favored case as long as 0.9369 support holds, even in case of deep pull back.

Economic Indicators Update