Pound Rebounds Sharply Amid Jittery Market Moves
— UK CPI Eases, But Market Reassesses Rate Cut Expectations —
■ USD/JPY and Cross Yen Remain Firm, Yet Directionless
In today’s Tokyo session, both USD/JPY and cross-yen pairs traded with a firm tone. However, USD/JPY merely recovered the losses from the previous overseas session, still struggling to sustain above the upper 150 level.
The market remains choppy and nervous, but seasonal demand and fiscal year-end factors continue to provide support, resulting in a range-bound market with a slight buy bias.
■ BoJ Governor Ueda Stresses “Gradual Hikes,” No Rush for Tightening
Bank of Japan Governor Ueda stated:
- “If our economic and price outlooks materialize, we will continue raising rates.”
- “Temporary food inflation should not be addressed with monetary policy.”
→ The market interpreted this as a sign of no immediate rate hikes, prompting renewed yen selling.
■ UK CPI Softens as Expected, Yet Pound Surges in Reversal
Despite a moderate decline in UK February CPI, the market responded with a sharp GBP rebound:
- Headline CPI YoY: +3.4% (Prev: +4.0%)
- Core CPI: +4.5% (Prev: +5.1%)
- Services CPI: +6.1% (Prev: +6.5%)
→ Although these figures would normally justify BoE rate cuts, GBP soared post-release. Likely reasons include:
- Market had already priced in 80%+ chance of May rate cut.
- “As expected” result triggered short-covering rally.
- Despite firm USD, GBP strength was pronounced across GBP crosses.
→ GBP/USD rebounded back above 1.27, while GBP/JPY broke above 191.00.
■ UK Budget Announcement Tonight – Market Reaction May Be Muted
UK Chancellor Rachel Reeves will present the Spring Budget and the OBR’s economic forecasts.
Expected contents include:
- Corporate tax hikes, minimum wage increases, and spending controls
- Downward revisions to economic growth forecasts
→ The budget may be neutral to slightly negative for GBP, but with short positions already unwound post-CPI, market reaction may be limited.
Instead, focus shifts to whether GBP buying continues through the NY session.
■ US Data and Official Comments Also on Tap – Impact May Be Limited
Key US indicators today:
- MBA Mortgage Applications
- Feb Durable Goods Orders
- Headline: -1.0% (Est.) vs +3.2% (Prev.)
- Ex-Transport: +0.2% (Est.) vs ±0.0% (Prev.)
→ Likely limited market impact. Still, USD/JPY could be sensitive to long-term US yields.
Central Bank Speakers:
- Villeroy (France), Kashkari (Minneapolis Fed), Musalem (St. Louis Fed), Cipollone (ECB)
Bond Auctions:
- $28B in 2-Year FRN
- $70B in 5-Year Notes
Commodities:
- EIA Weekly Crude Oil Inventory Report
→ None are key drivers on their own, but with thin liquidity in the NY afternoon, volatility risk remains elevated.
■ Trade Strategy: GBP May Be Shifting from Short-Covering to Uptrend
Today’s sharp rebound raises the possibility of a trend reversal beyond short-covering. Key watchpoints include:
- Whether rate cut expectations have peaked after softer CPI
- Whether buying continues after the UK budget announcement
- GBP/JPY could aim for 193.00, GBP/USD for a 1.28 test
→ At this stage, shorting GBP is risky. Short-term long entries on pullbacks could be a viable strategy.
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