The Dragon Awakes, Fed and Indyref in Focus
Fears that China wanted to wring out some of the excesses in the lending sector were put to sleep by the massive injection from the PBOC into the 5 largest lenders. It's good news that officials are willing to act but it's also worrying that they felt the need to react so strongly.
As always with China, there's a lingering feeling about what we don't know. There was talk about added liquidity in Asia but the size of the move didn't become apparent until US trading and it quickly sent the Aussie nearly a cent higher to 0.9113.
A few other headlines hit at the same time, including WSJ Fedwatcher Hilsenrath saying the Fed is unlikely to alter guidance on “considerable time”. Add it up and you have a dovish PBOC and a continued dovish Fed.
The moves dislodged the US dollar more broadly for a period and USD/JPY slumped 35 pips down to 106.81 and then back to 107.15 in a whipsaw.
But the nastiest whipsaw was in cable. Initial headlines on a poll from ICM showed the Yes side ahead 52-48 but it was an error. The true result was 52-48 for the No side. It was quickly corrected but the pound dropped 35 pips in a flash only to bounce right back.
We suspect more of the same in the day ahead.The economic calendar is light in Asia-Pacific trading but look for more details on the PBOC liquidity operations. After that the focus will shift to CPI and the Fed.
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