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Central banks in Japan, the UK and the US will convene meetings this week; Europe likely faces a third wave of COVID

BLOG March 16, 2021 at 06:05 am (GMT)

• Bank of Japan expected to unveil small changes after policy review
• EURGBP stays steady as Europe may face a third wave of COVID
• GBPUSD struggles pending central banks decisions

Bank of Japan (BoJ)’s policy review on long-term stimulus is set to land this week as rising bond yields are raising concerns not just among investors but also among central bankers globally. ECB has already announced that it will accelerate bond purchases, and the US Fed has commented that it will stay cautious as it starts the meeting on Tuesday. In Japan, yields are controlled in a tight band around zero, and this difference has already weakened the Yen to a large extent against US Dollar. The weakness, however, is generally favored among exporters. Shigeto Nagai, a former BoJ senior official comments that, “BoJ is looking to send the most dovish message…to keep the Yen weak, and the yield curve control is a useful framework for highlighting the difference.” Accordingly, most investors are expecting BoJ to keep the stance in general, though potentially with some small changes, such as hinting that it will allow larger long-term yield moves, emphasizing its ability to lower the negative interest rate, or considering scrapping its annual 6-trillion-yen ETF buying target.

EURGBP exchange rate held steady today and is currently fluctuating around 0.85. Euro investors are getting increasingly concerned after several German doctors have called for an immediate lockdown to avoid a third wave of COVID. Tomorrow we will see March’s Eurozone ZEW survey on economic sentiment, and a further deterioration on the sentiment will be negative for EUR. On the other hand, if the UK’s outlook remains positive, it will help GBPEUR exchange rate to head higher.

GBP and USD investors are waiting for central banks’ decisions, as both BoE and US Fed will conduct their meetings later this week. GBPUSD rebounded from a monthly low last week but still remains in the downward trend, currently trading at 1.3877 at press time, a -0.1655% since opening. US will release its retail sales tomorrow and will likely influence the exchange rate it surprises investors.