GBP Rallying As Sunak Win Looks Likely – Yen Reversing Gains Following BOJ Move

Two key focus points for markets today. The first is that the UK Conservative party leadership race might well see former Chancellor Rishi Sunak declared as the new PM today following former PM Boris Johnson pulling out last night. On the back of talks with Sunak aimed at agreeing some sort of power-sharing deal, Johnson announced that the talks had been fruitless and withdrew his name. Sunak, who is now in the lead, needs to pass the 100 MP threshold today to secure victory.

The second focus point is the latest intervention from the BOJ. USDJPY was seen crashing around 600 pips lower on Friday, mimicking the price action we saw last time the BOJ intervened a few weeks ago. However, JPY is plunging lower again today with JPY pairs quickly erasing gains as traders eye the upcoming BOJ meeting which is set to see the bank keeping policy unchanged.

Key Factors for Today

• USD seeing better demand on Monday
• UK leadership race favouring Sunak as Johnson pulls out
• JPY reversing Friday’s BOJ-intervention moves
• Equities stalling amidst fresh USD strength
• GBP rallying on potential Sunak win
• Metals & oil paused for now as USD back under bid

Coming Up

• GBP UK PMIs
• EUR Eurozone PMIs
• USD US PMIs

Equities See Softer Start to Week

A stronger start for the US Dollar on Monday is causing some hesitancy among equities traders with most indices a little lower across the European open. Expectations of further rate hikes from the ECB and BOC this week, along with UK political uncertainty and risks of BOJ intervention, mean that there is quite a lot of caution in markets at the start of the new week.

AmEx Shares Drop As Company Boosts Bad Loans Buffer

As US earnings season rolls on, shares in AmEx were seen cratering around 7% on Friday, testing YTD lows in the stock. The move came despite a mostly positive release which saw AmEx reporting Q3 EPS of $2.47 vs $2.40 expected on revenues of $13.55 vs $13.1 expected. However, loss provisions for bad loans were seen soaring by more than double, worrying investors over potential future performance across Q4.

GBP Rallies As Sunak Win Looks Likely

In FX, GBP has been the strongest performer across the European open on Monday. GBP looks to be deriving support from the view that Sunak is likely to take over as party head, given that he is seen as the most fiscally responsible and economically savvy of the candidates. If Sunak is confirmed today, we can expect a further relief rally as traders await details of a new government.

BOJ in Focus As Intervention Fails

JPY is back under pressure again today. The reversal of Friday’s BOJ-driven spike higher in JPY will no doubt be worrying for the central bank. The moves suggest that the market only views a shift in BOJ policy as strong enough to help reverse current JPY moves, putting fresh pressure on the BOJ ahead of its October rates meeting later this week.

Metals & Oil Capped by Stronger USD

In the metals and commodities space, both metals and oil have come back under pressure amidst a better start for the US Dollar today. Gold and silver are both pulling back from recent highs and look vulnerable to further downside if USD continues to build this week. Oil prices too, are suffering from fresh USD strength. Prices were boosted last week by news of an unexpected EIA drawdown though the rally has stalled for now.