3 min to read
Dollar Buying Intensifies
Pushing Dollar/Yen Near 140 Yen Mark.
“Dollar/Yen Nearing 140 Yen Mark as Dollar Buying Strengthens”
In today’s New York foreign exchange market, the dollar’s buying momentum has gained significant traction, propelling the dollar/yen pair towards the pivotal 140 yen mark. The yen’s vulnerability has further bolstered the dollar/yen pair’s upward movement. However, as we approach the critical 140 yen level, we are observing cautious sentiments among option traders engaging in defensive selling and others waiting for a retracement, temporarily limiting a complete recovery beyond the 140-yen range.
Notably, U.S. Treasury yields, which previously experienced a decline, have now rebounded to nearly yesterday’s levels during the NY trading hours, sparking a resurgence in dollar buybacks. A robust performance in the U.S. stock market and positive expectations regarding the U.S. economy’s soft landing are providing substantial support to the dollar. Furthermore, the prevailing risk appetite in the market is contributing to the yen’s depreciation.
The Federal Reserve (FRB) is widely anticipated to announce an interest rate hike during next week’s Federal Open Market Committee (FOMC) meeting. While all eyes are on the developments post-September, there is still time for multiple economic indicators to be confirmed, leading to an uncertain outcome. The FRB has hinted at the possibility of two more rate hikes, including the upcoming one, although market sentiments remain ambivalent about the future. Nevertheless, both the FRB and the market are aligning in the belief that the current U.S. rate hike cycle is inching towards its conclusion.
Amidst this dynamic backdrop, the driving force behind the foreign exchange market has shifted its focus from monetary policy differentials to disparities in economic performance. This shift has sparked observations that such a change could favor the dollar.
The Euro-Dollar (EUR/USD) exchange rate has experienced a decline, briefly touching the 1.11 dollar range. Despite reaching around 1.1275 dollars in the previous session, the candlestick chart displayed upper wicks, indicating a sluggishness in its upward trajectory. Today’s downward trend has raised concerns about potential downside risks, prompting market participants to closely monitor the developments in the coming days.
Analysts have noted that after achieving a 15-month high in the prior session, the Euro-Dollar pair might encounter challenges going forward. Several technical indicators are signaling an overbought condition. While overall market sentiment continues to indicate potential for further upside in the Euro, oscillators such as the RSI and Stochastics are warning of overbought levels that cannot be ignored.
Notably, robust economic data from the United States has heightened expectations of a strong U.S. economic performance, potentially strengthening the dollar and weakening the Euro in the future.
Today, an interview with Jens Nagel, Bundesbank President and known hawk among ECB policymakers, garnered attention. He stated that an interest rate hike next week is almost certain, but the future monetary policy will hinge on forthcoming economic indicators. A similar tone of easing hawkishness, akin to Klaas Knot, President of the Dutch central bank, was also observed.
The Pound-Dollar (GBP/USD) pair has experienced intensified selling pressure, leading to a sharp decline to the 1.28 dollar range. The market witnessed a strong downward momentum, reminiscent of the significant drop seen since March. The catalyst for this Pound sell-off was the release of the UK Consumer Price Index (CPI) on this day. Both the overall and core indices exhibited larger-than-expected declines, indicating a trend of slowing inflation.
Following the UK CPI release, the short-term financial market has lowered its expectations of a 0.50 percentage point hike. While a 0.25 percentage point rate hike is widely anticipated, the market’s expectation of a substantial increase has diminished to around 42%.
Nevertheless, some analysts still speculate that the Bank of England might opt for a substantial rate hike during the August Monetary Policy Committee (MPC) meeting, even in light of today’s CPI data. They point out that while overall inflation has declined, the slowdown in service inflation remains gradual, with levels still relatively high. The service inflation, standing at 7.2% year-on-year, holds significant interest for the Bank of England, providing strong evidence supporting the case for a substantial rate hike. Combined with the latest UK employment statistics showing continued acceleration in private sector wage growth, this implies a sustained inflationary trend, potentially justifying further rate increases.
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