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The USD/JPY exchange rate continues its upward trend
reaching new highs today as it approaches the 144 yen level
“The USD/JPY exchange rate maintains its upward trajectory, achieving fresh highs today as it approaches the 144 yen threshold”
Although the recent US Consumer Price Index (CPI) release slightly undershot projections, implying a moderation in inflationary pressures, the swift response within the short-term financial landscape indicates a reduced probability of a Federal Reserve (FRB) interest rate hike within this year’s timeline. A consensus is emerging that prospects for a rate increase at the upcoming September FOMC meeting are minimal.
In the wake of these developments, a transient phase of USD selling reverberated across the forex market, leading the USD/JPY pairing to temporarily dip towards the mid-143 yen range. However, as the initial market impetus ebbed, an ensuing resurgence in USD buying has ensued.
The prevailing US CPI report conforms to scenarios of disinflation, the culmination of the FRB’s tightening cycle, and a resilient US economy. This confluence reinforces the prevailing sentiment of sustained USD demand within the foreign exchange arena.
Moreover, amidst indications of inflation moderation within the current CPI report, speculation looms concerning the forthcoming FRB symposium slated for late August in Jackson Hole, Wyoming. It is conjectured that Fed Chair Powell may uphold a hawkish stance, potentially galvanizing further USD purchasing activity.
Post the symposium, discourse has surfaced regarding the potential rejuvenation of yen-related carry trades. Despite the recent recalibration of the Bank of Japan’s (BOJ) Yield Curve Control (YCC) policy, the yield on the 10-year Japanese government bonds has refrained from substantial surges. Despite the BOJ expanding its threshold for the 10-year bond yield, the overarching accommodative stance prevails, a disposition seemingly mirrored within the bond market.
Meanwhile, the EUR/USD exchange rate continues to recede below the 1.10 threshold. The immediate aftermath of today’s US CPI release prompted a brief ascent towards approximately 1.1065, testing the 21-day moving average, yet subsequent selling pressures manifested. Although the EUR/USD pair discovered support from the 100-day moving average and demonstrated resilience, the once optimistic outlook for the euro has gradually waned, coinciding with the European Central Bank’s (ECB) gradual departure from its hawkish stance.
The ECB’s pivot towards a more dovish position underscores the sluggishness characterizing the Eurozone’s economic landscape. Despite inflation’s significant deviation from the 2% target, apprehensions over the impeding economic growth deterrent of further rate hikes have heightened. While historical underperformers, such as Greece, previously undermined the Eurozone economy, the spotlight has shifted onto Germany, the Eurozone’s premier economic engine.
Once heralded as the Eurozone’s cornerstone for revival, Germany is now colloquially referred to as the sick man of Europe. Amidst negative growth among G7 nations, coupled with manufacturing and construction sectors on a downturn and the amplified repercussions of China’s economic deceleration, Germany’s fragility appears poised to persist.
The GBP/USD exchange rate experienced a transient ascent towards the 1.28 level following the US CPI release, only to swiftly revert to its downward trajectory. The prevailing downward momentum since late July remains steadfast, and deliberations continue surrounding the trajectory of the pound-dollar pair.
Anticipation is mounting for tomorrow’s release of the UK’s June monthly GDP figures, concurrent with the Q2 GDP data. Initial projections hint at a 0.0% growth on a quarter-on-quarter basis. However, should negative growth materialize, analysts posit that the GBP/USD exchange rate may confront accelerated declines. Notably, the 100-day moving average, presently positioned around the lower 1.26 range, is closely monitored as an immediate support level against potential downside movements.
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