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The USDJPY pair experienced a notable decline, reaching the mid-139 yen level
There is a belief that the European Central Bank (ECB) has already priced in two more interest rate hikes by September
“The USD/JPY pair extended its decline, reaching the mid-139 yen level”
The USD/JPY pair experienced a notable decline, reaching the mid-139 yen level, primarily driven by remarks made by two influential FOMC members hinting at the possibility of postponing the Federal Reserve’s (Fed) interest rate hike scheduled for June. Consequently, this triggered heightened selling pressure on the U.S. dollar, leading to a surge in the probability of the Fed maintaining the current interest rates, estimated at around 70% in the short-term financial market.
Both Jefferson, a distinguished FOMC board member, and Harker, President of the Federal Reserve Bank of Philadelphia, suggested that a delay in the June interest rate hike might be necessary. However, it’s important to note that they emphasized that such a decision would not signify the conclusion of the overall tightening cycle. As we enter the blackout period, during which FOMC members abstain from public statements until the FOMC meeting results are announced on June 14th, these recent comments carry significance and are anticipated to elicit a sensitive response from the market.
While the upcoming release of U.S. employment statistics over the weekend could play a role in shaping the situation, a scenario where the figures fall short of expectations might prompt the Fed to maintain the current interest rates even before the release of the U.S. Consumer Price Index (CPI) on June 13th.
In a noteworthy development, the April data on U.S. job openings was published, surpassing expectations by a significant margin. Consequently, the foreign exchange market initially witnessed strong buying activity for the U.S. dollar, propelling the USD/JPY pair back to approximately 140.40 yen. However, this rebound was short-lived, and the pair swiftly retraced to the mid-139 yen level. The prevailing sentiment suggests that the USD/JPY pair encounters resistance on the upside. As we approach the end of the month, it is likely that position adjustments are taking place. Nonetheless, the overall trend remains unchanged, with the upward momentum still intact.
Shifting focus to the U.S. debt ceiling issue, the House Rules Committee has approved the implementation of a vote during today’s House session. Following approval by the House, the bill will proceed to the Senate for deliberation. However, considering the presence of opposing members, uncertainty persists regarding whether the bill will reach President Biden’s desk this week. Nevertheless, market confidence remains high that the bill will be enacted by the June 5th deadline, effectively averting a potential debt default.
Meanwhile, the EUR/USD pair faced heightened selling pressure, resulting in a prolonged decline to the mid-1.06 dollar level. However, towards the end of the session, the pair stabilized in the upper 1.06 dollar range. Notably, preliminary figures for Germany and France’s May Harmonized Index of Consumer Prices (HICP) were recently released, both revealing unexpected declines compared to the previous month. With the upcoming announcement of the HICP for the eurozone tomorrow, there is a prevailing anticipation that it may also reflect weak figures.
Within the market, there is a prevailing belief that the European Central Bank (ECB) has already factored in two additional interest rate hikes by September. Consequently, if inflation shows indications of decelerating earlier than projected, the euro could face a negative response. In such a scenario, it is conceivable that the EUR/USD pair may potentially decline below the 1.06 dollar level.
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