Europe Summary and Highlights 19 March

European morning session

The USD gained some ground against the riskier currencies through the European morning, primarily due to concerns around developments in Turkey, where Turkish authorities have detained the mayor of Istanbul, one of Erdogan’s main rivals, on charges including corruption and aiding a terrorist group. This triggered sharp losses in the Turkish lira and the Turkish stock market, and led to losses in the EUR and AUD against the USD. CHF and JPY. EUR/USD dropped 25 pips to 1.09, while AUD/USD lost 30 pips to 0.6330. GBP and CAD were also weaker, but gained a little against the EUR and AUD. USD/JPY and USD/CHF were marginally higher.

There was little JPY impact from the Ueda press conference following the BoJ meeting. Ueda was, in our view, marginally hawkish, but the market continued to see a May BoJ rate hike as only an outside chance. Ueda once again indicated that rates would rise if the economy performed in line with BoJ forecasts, and noted that wages were rising at or above BoJ expectations, and GDP was likely to be solid in Q1. But he said there was a lot of uncertainty over the impact of US tariffs, and also that the downside risks of falling behind the curve with monetary policy were not high.

Datawise, Eurozone CPI was revised slightly lower to 2.3% y/y in February, but the core rate was unrevised at 2.6%.

Asia session

The JPY was already softening before the BoJ interest rate decision with no expectation to change of rates and a glimpse of hope for hawkish forward guidance that is likely to be disappointed. The Japan February exports increased by 11.4% y/y while import contracted by 0.7% y/y, continues to point to weak private consumption. The Bank of Japan has left policy unchanged as expected at 0.5% with little forward guidance. They seems to be optimistic about consumer spending despite inflationary pressure and limited evidence to show momentum from household spending. The BoJ only sees inflation expectation to be align in a medium run, which is an interesting take after they hike in January and would be up to be interpretation for Ueda in his press conference. USD/JPY is trading 0.23% higher at 149.6 despite JGB yields outperforming U.S. Treasury yields.

The equity space is steady on Wednesday as we had little market moving headline except the BoJ's interest rate decision. Major equity indexes are in the green but not by much. USD is trading broadly higher and see AUD/USD down 0.07% to 0.6356, NZD/USD is also 0.12% lower at 0.5812 while USD/CAD rose 008%. Else, EUR/USD is down 0.08% and GBP/USD down 0.1%.