investingLive European FX news wrap: JPY skyrockets on "rate check", BoE stays neutral

BOE leaves bank rate unchanged at 3.75% in April meeting, as expectedDollar slides across the board after USD/JPY selling hitsUSD/JPY tumbles further after intervention warning earlierTokyo officials give currency traders one final offrampBoE preview: will the central bank make another step towards a rate hike?Italy April preliminary CPI +2.8% vs +2.6% y/y expectedEurozone April preliminary CPI +3.0% vs +2.9% y/y expectedEurozone Q1 preliminary GDP +0.1% vs +0.2% q/q expectedThe ECB is stuck between a rock and a hard placeJapan’s top currency diplomat issues final warning before action in FX marketItaly Q1 preliminary GDP +0.2% vs +0.1% q/q expectedJapan’s Katayama: We are getting closer to taking decisive step in FX marketGermany Q1 preliminary GDP +0.3% vs +0.2% q/q expectedGermany April unemployment change 20k vs 4k expectedECB preview: a hawkish hold is expected but there’s risk of a disappointmentSpain Q1 preliminary GDP +0.6% vs +0.5% q/q expectedFrench inflation continues to pick up in April to highest since July last yearWhat are the main events for today?FX option expiries for 30 April 10am New York cutGermany March retail sales -2.0% vs -0.1% m/m expectedGermany March import prices +3.6% vs +3.0% m/m expectedFrance Q1 preliminary GDP 0.0% vs +0.2% q/q expectedMorgan Stanley scraps call for Fed rate cuts this yearJapan reportedly mulls bringing back energy subsidies this summerIt’s been a hell of a session today with lots of economic data, yen intervention and the BoE rate decision. Let’s start with the most important economic data. The Eurozone Q1 GDP missed forecasts coming in at 0.1% vs 0.2% expected. The growth impulse has been pointing more towards a neutral stance for the ECB with a slightly hawkish bias in case the war drags on for several more months. Bear in mind that GDP is expected to contract further in Q2 if the war extends into summer.At the same time of the Eurozone GDP, we got the Eurozone Flash CPI report. Headline CPI did increase as widely expected but the Core CPI eased further to 2.2% vs 2.3% in the prior month. The economic data leading up to today’s ECB decision supports more a patient approach rather than an outright hawkish leaning as expected by the market.The main highlight of the session though was the Japanese yen. USD/JPY broke above the key 160.00 handle yesterday and extended the gains early in the session in what looked like the next leg into a new cycle high. But Katayama and Mimura said no…Japanese Finance Minister Katayama warned the markets that they were getting closer to taking decisive steps in the FX market. This gave the JPY the first boost. As the yen started to depreciate again, Japanese Top Currency Diplomat Mimura said that they were in close contact with their US counterparts and that it was his final warning before action. The yen started to appreciate again but the momentum wasn’t that strong until 10:26 GMT when we started to see a much stronger move. Since the JPY didn’t move in a straight line for 200+ pips as it generally happens with an outright intervention, everyone speculated on “rate checks”. The playbook looks very similar to late January when we got the verbal intervention and then the rate checks. The yen might get some reprieve in the short-term but the fundamentals are still heavily skewed to the downside.Finally, we had the Bank of England rate decision where the central bank left interest rates unchanged at 3.75% but used a more cautious tone than expected. There was no major hawkish leaning. The BoE acknowledged that monetary policy cannot affect global energy prices, and should generally look through the initial impact on inflation but added that the risk of second-round effects would depend partly on how long energy prices remained elevated. Coming into the meeting, traders were pricing in a 63% chance for a rate hike in June but after today’s decision, the probability fell to 48%.
This article was written by Giuseppe Dellamotta at investinglive.com.

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