Market Impact of UK and US Bank Holidays
Today, UK banks are closed in observance of the Spring Bank Holiday, and US banks are closed for Memorial Day. These closures are expected to result in low liquidity and irregular market volatility.
Yen Struggles Despite Japan's Efforts
The Japanese yen continues to weaken, with USD/JPY trading around the 157 mark this morning. This is despite Japanese 10-year yields reaching a 12-year high on Friday. Japan has been actively pushing against excess foreign exchange volatility at the G7 meeting, but these efforts have been insufficient to counter yen bears, as carry trading remains popular.
GBP/JPY Popular Among Traders
GBP/JPY has been the most popular trade, rising to test a break above the 200 mark. This level was previously reversed in April following suspected intervention. The pound has been hampered by weaker-than-expected UK data and a rebound in the US dollar, preventing it from breaking key resistance levels.
UK Consumer Confidence and Retail Sales
The UK GfK consumer confidence index improved to -17 for May, up from -19 the previous month, slightly above the consensus forecast of -18. This is the strongest reading since December 2021. Joe Staton, GfK Client Strategy Director, commented on the improvement driven by better personal finance outlooks and a more optimistic view of the economy over the coming year. Despite ongoing cost-of-living concerns, Staton noted that consumers are sensing improving conditions, anticipating further growth in confidence in the months ahead.
Conversely, the ONS reported a slump in UK retail sales volumes by 2.3% in April, against a consensus forecast of a 0.5% decline. The March figure was revised to show a decline of 0.2%, compared to the initial report of no change.
UK Election and Market Sentiment
The upcoming UK election campaign is unlikely to have a significant short-term impact on the pound. According to Scotiabank, a Labour government should not unduly worry investors. Stability and the potential for improved relations with the EU could be seen as positives.
European Central Bank and Interest Rates
Market confidence remains that the ECB will cut interest rates in June, adding another layer of complexity to the global economic outlook.
Japan's Continued Efforts to Stabilize the Yen
Japan successfully lobbied the G7 to reaffirm their commitment to managing foreign exchange volatility. Japan's top currency diplomat, Masato Kanda, emphasized the country's readiness to intervene in the currency market if necessary. "If there are excessively volatile moves that have an adverse effect on the economy, we need to take action, and doing so would be justified," Kanda said.
Bank of Japan Governor Kazuo Ueda also attended the G7 meeting and indicated that normalizing monetary policy remains a possibility despite soft consumption and rising bond yields. This stance reflects the delicate balance policymakers face in addressing sharp yen declines while maintaining low borrowing costs to support Japan's fragile economy.
Conclusion
The combination of UK and US bank holidays is expected to create a day of low liquidity and irregular volatility in the markets. Traders are closely watching the yen's performance and Japan's efforts to stabilize it, along with economic data from the UK and potential ECB rate cuts. As these dynamics play out, market participants should stay alert to further developments that could impact their trading strategies.