Brexit Stokes Fear in GBP/USD Again

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Market Drivers Mar. 15, 2016

BOJ does not add any more QE USDJPY falls
GBP feels the heat on latest Brexit poll
Nikkei -0.68% Dax -0.57%
Oil $36/bbl
Gold $1233/oz

Europe and Asia:
EUR IP 2.1% vs. 1.5% eyed

North America:
USD Retail Sales 8:30

The Bank of Japan made no changes in its monetary policy at its meeting today disappointing investors in Asian session trade and driving USD/JPY below the 113.00 figure.

The BOJ noted that it will maintain the 80 Trillion yen pace of QE and will keep its -10bp rate on deposits reviewing the ratio of reserves to which the negative rate will be applied every three months.

In one deviation from the former policy the BOJ noted that it will exempt the Money Reserve Funds from the negative rate provision. This was done with the intent of keeping retail funds in securities accounts where they could be invested rather have then flow back into the banking system. The BOJ is trying in every which way possible to stimulate spending and investment in the Japanese economy so the MRF exemption was expected.

The lack of any additional policy initiative disappointed the market and USD/JPY lost 100 points off the highs as the pair dipped below the 113.00 figure before finding some support. The BOJ may be looking at the Fed to do some of the heavy lifting for it. With FOMC scheduled for tomorrow attention will no doubt turn to this side of the Pacific as the market will try to gauge Fed posture. If Ms. Yellen sets a decidedly hawkish tone, suggesting that rate hikes may resume in June USD/JPY will likely reverse today’s losses and head towards the 115.00 barrier.

Meanwhile in UK fresh fears of Brexit gripped the market sending cable tumbling more than 150 points off session highs. A poll in UK Telegraph which is a conservative pro-Brexit paper indicated that the Leave campaign had a 52% to 47% edge with immigration the key concern of Leave supporters. The poll was conducted by telephone which suggests that it was likely to contain a disproportionate number of older voter who favor the Leave vote and therefore may have been skewed.

Still the fact that the Brexit issue effectively remains a toss up in UK politics is worry enough for the market to keep cable under pressure for the time being. So far streling has found support ahead of the 1.4150 level but may see further selling as the day wears on.

In North America today the focus will turn to US Retail Sales with markets anticipating a decline to -0.1% from 0.2% the month prior. However if the data prints positive once again it would provide further evidence of the resilience of the US economy and could support USD/JPY ahead of the FOMC meeting tomorrow.

Boris Schlossberg
Managing Director

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