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UK Inflation Eases, BoJ Stands Pat and Bitcoin Steadies
www.investing.com/analysis/uk-inflation-eases-boj-stands-pat-and-bitcoin-steadies-200634472
UK Inflation Eases, BoJ Stands Pat and Bitcoin Steadies
By MarketPulse (Craig Erlam) | 23 hours ago (Jan 18, 2023 06:08AM ET) Equity markets are marginally higher in Europe, with the Nikkei outperforming in Asia on the back of a much weaker yen.
BoJ stands firm
The Bank of Japan has decided to stand its ground against market forces that have forced it to purchase huge amounts of JGBs to defend its yield curve control upper band. Despite mounting speculation that it could be prepared to tweak the tool or abandon it altogether, the central bank has stubbornly dug in its heals and seemingly prepared itself for another onslaught in the bond markets.
The surprise decision last month to widen the threshold in which it will allow the United States 10-Year yield to trade has further fueled speculation that it’s planning to phase out YCC, so rather than ease the pressure on the central bank as it hoped, it has intensified. In standings its ground today, it’s effectively invited the backlash, and the yen has been hammered.
Inflation eases but is still far too high
UK inflation eased slightly in December, the second month in which it has fallen, indicating that it has peaked, and barring another surge in energy prices, it could now steadily decline. That will relieve households and businesses suffering the cost-of-living squeeze, although, with the headline CPI still above 10%, there’s still obviously a long way to go.
The Bank of England now finds itself in the uncomfortable position of needing to keep raising interest rates as inflation is still more than five times its target. Even core inflation is above 6%, and we haven’t seen much progress on that front. Markets are pricing in another 1% of rate hikes in the coming months. Still, if inflation remains stubbornly high, they may have to do more, especially if the economy shows the kind of surprising resilience it appeared to in the fourth quarter.
Steadies after a massive surge
It’s been a phenomenal week for Bitcoin, up around 20% and looking in a far healthier position. The lack of further contagion in the aftermath of the FTX collapse and the surge in risk appetite has seen a flurry of support for cryptos which have had a rough few months, to put it lightly. They’ve made up for lost time, and bitcoin is now steadying above $21,000.
Whether it can significantly build on this rebound is another thing, but the fact that it’s trading back in the pre-FTX range will be a massive relief to the industry that will have feared further plunges or negative headlines.
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UK Inflation Eases, BoJ Stands Pat and Bitcoin Steadies
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