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The USDJPY exchange rate continues its upward momentum
amid expectations of widening yield differentials between the UK and the US.
“Amidst the backdrop of anticipated yield differential expansion between the United Kingdom and the United States, the USD/JPY exchange rate continues its upward trajectory, capturing the attention of economic observers”
In the course of today’s trading, the USD/JPY exchange rate underwent a bout of profit-taking sales, causing a transient dip to the mid-145 yen range. Nonetheless, it swiftly rebounded and settled around the mid-145 yen level, showcasing a notable resilience. The exchange rate has demonstrated a consistent upward movement, even reaching the upper echelons of the 145 yen range earlier today, signifying a sustained trend.
The recent ascent in US Treasury yields, driven by inflation markers and concerns of oversupply, has notably reinforced the position of the dollar. In contrast, the Bank of Japan, while expanding the permissible scope of the Yield Curve Control (YCC) policy, remains committed to its accommodative stance. Consequently, the yield on the 10-year Japanese government bond has maintained its foothold in the 0.6% range. This dynamic has fostered expectations of a burgeoning yield gap between the UK and the US, thereby acting as a propellant for the ongoing upward trajectory of the USD/JPY exchange rate.
While there are lingering concerns regarding the potential for intervention by the Ministry of Finance, the prevailing sentiment leans toward the possibility of such intervention being verbal rather than substantive, given the lack of concrete intervention actions at this juncture.
Conversely, the EUR/USD exchange rate experienced a momentary decline to the 1.08-dollar range before staging a rapid recovery to the 1.09-dollar threshold. Nonetheless, the exchange rate continues to hover beneath the 100-day moving average, maintaining a prevailing bearish sentiment.
The release of Germany’s ZEW Economic Sentiment Index today exceeded expectations, underlining a positive tone. However, there exists an alternate viewpoint suggesting a subtle undercurrent of economic frailty in Germany’s landscape.
While the Expectations component of the ZEW Economic Sentiment Index remained relatively steady and refrained from deteriorating as much as anticipated, the Current Situation component shed light on apprehensions about Germany’s economic deceleration, evidenced by a fresh decline. In light of the imminent strain on equities and other risk assets in the upcoming months, the prospects for Germany’s economic outlook appear susceptible to weakening.
In the realm of GBP/USD exchange rate dynamics, a resurgence was observed during the New York trading session, pushing the exchange rate back to the mid-1.27-dollar range. The preceding day saw a momentary retreat to the mid-1.26-dollar range, encountering the pivotal 100-day moving average, yet the current upward trajectory seems fortified by the support of this moving average.
The unveiling of UK employment statistics during the London trading hours notably reinforced the probability of an anticipated rate hike by the Bank of England in September. With the 4-6 month ILO unemployment rate average surpassing forecasts at 4.2%, suggestive of a tempering labor market, and the annual growth rate of average weekly earnings (excluding bonuses) exceeding expectations at a remarkable 7.8%, marking a historical high.
This outcome has prompted the short-term financial markets to price in a 0.25% rate hike by the Bank of England’s Monetary Policy Committee (MPC) for September, attaching a 100% probability to this projection. Moreover, there is a growing consideration of a 20% probability for a more pronounced 0.50% rate hike.
Despite the indicators pointing to a cooling labor market in the UK, wage growth remains notably resilient. Nonetheless, certain experts suggest that even if wage growth doesn’t experience significant deceleration, the Bank of England might consider a temporary pause in its rate hike cycle come November. Anticipation now turns to the impending release of the UK’s Consumer Price Index (CPI) tomorrow, with expectations of moderated growth compared to the prior period.
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