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The USDJPY experienced a swift sell-off
briefly plummeting to the 148 yen range.
“The USD/JPY experienced a swift sell-off in today’s New York foreign exchange market, briefly plummeting to the 148 yen range”
Emerging reports indicate that the Bank of Japan is deliberating a potential adjustment to its Yield Curve Control (YCC) framework during the forthcoming decision meeting. This proposed adjustment seeks to introduce greater flexibility into the effective upper limit of the current 1% long-term interest rate, allowing for a certain degree of interest rate increase beyond the 1% threshold. The rationale behind this consideration stems from the imminent approach of a 1% long-term interest rate in Japan, driven by escalating US interest rates. The primary objective is to mitigate any market distortions stemming from interest rate fluctuations while contemplating amendments to the conduct of consecutive bid operations.
The Outlook Report for the Bank of Japan’s impending decision meeting has been widely anticipated to include a positive revision in the inflation outlook. However, there is a divergence of opinions concerning the potential adjustments to the YCC framework.
Nevertheless, certain segments of the market hold the view that even if the Bank of Japan enacts the reported revisions to YCC, the market response may prove transient, and the USD/JPY currency pair could continue to exhibit a resilient performance. The yen is anticipated to grapple with persistent headwinds. Despite the Bank of Japan potentially tolerating an increase in the 10-year bond yield to approximately 1%, the US 10-year bond yield remains roughly 3.89 percentage points higher than Japanese government bonds. When considering that the average yield spread over the past five years was approximately 2 percentage points, this still presents an attractive differential.
The Euro/Dollar (EUR/USD) observed renewed buying interest, recuperating the 1.06-dollar range. This recent upswing has found support from the 21-day moving average, providing a slight prospect of a market rebound. Today’s release of Germany’s preliminary Consumer Price Index for October indicates a moderated growth rate, registering a year-on-year increase of 3.0%. This figure represents the lowest rate since June 2021 and falls below earlier projections.
Last week’s board meeting of the European Central Bank (ECB) conveyed concerns that the rapid sequence of interest rate hikes was beginning to exert an impact. Nonetheless, market sentiment leans towards the completion of rate hikes by the ECB, with expectations shifting towards potential future rate cuts. Today’s German CPI data aligns with this perspective.
The British Pound/Dollar (GBP/USD) experienced a rebound, ascending to the mid-1.21-dollar range. Presently, the focus of the market centers on the currency pair’s capability to reattain the 21-day moving average, situated around 1.2175 dollars.
This week features the scheduled meeting of the Monetary Policy Committee (MPC) of the Bank of England (BOE). While a decision to maintain existing interest rates is widely expected, market commentary suggests that this event could instigate further depreciation of the British Pound. The BOE’s MPC is likely to acknowledge the deteriorating economic indicators in the UK, hinting at the prospect of earlier-than-anticipated interest rate reductions. Presently, the market has factored in a 0.25% point rate cut by September 2024, a projection that is considered overly conservative. Should a cautious statement be released, the adjustment of interest rates could amplify the downward pressure on the Pound.
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