Will FOMC Push USDJPY to 115.00?

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Market Drivers November 1, 2017
UK PMI Manufacturing beats
Market waits for for FOMC
Nikkei 1.60% Dax 1.55%
Oil $55/bbl
Gold $1279/oz.

Europe and Asia:
AUD New Home Sales -6.1% vs. 9.1%
GBP UK PMI Manufacturing 56.3 vs. 55.8

North America:
USD ADP 8:15
USD ISM Manufactuting 10:00
USD FOMC 14:00

The dollar and the pound led the way in Asian and early European trade today as traders anticipated hawkish policy moves from both central banks over the next 24 hours.

In UK cable was boosted by better than expected UK PMI Manufacturing data which came in at 56.3 versus 55.8. According to Markit, “The UK manufacturing sector started the final quarter of the year on a solid footing. Production and new order volumes continued to rise at robust rates, as companies benefited from strong domestic market conditions and rising inflows of new export business. Price pressures remained elevated, however, with rates of inflation in input costs and output charges both accelerating and staying well above historical series averages.The expansion was broad-based by sub-sector, with consumer, intermediate and investment goods producers all registering output growth.”

The news suggests that demand remains relatively robust and should only confirm the market’s nearly 90% bet that BoE will hike rates 25bp at its meeting this Thursday. The key, however, will be the forward guidance of the central bank. If BoE hints that is just the start of the tightening cycle rather than a one and done affair then cable could climb to 1.3500 over the near-term horizon.

Meanwhile, in the US the data deluge is beginning with ADP and ISM Manufacturing on the docket today. The market is looking for a rebound in ADP numbers to 200K or more after the hurricane hampered data last month. A print below 200K could ping USDJPY temporarily, but the true focus today will be on FOMC statement. No one expects any policy change until December, but if the Fed maintains a hawkish tone in today’s release setting up the prospect of a steady and certain hike path in 2018, USDJPy could quickly rise towards the 115.00 figure on market enthusiasm alone.

Boris Schlossberg
Managing Director

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