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The USDJPY pair maintains its upward trajectory
fueled by the surpassing of expectations regarding the probability of a June interest rate hike.
“The USD/JPY pair maintains its upward trajectory, fueled by the surpassing of expectations regarding the probability of a June interest rate hike”
The USD/JPY pair demonstrated persistent upward momentum, intensifying its gains. Amidst the London trading session, profit-taking selling led to a temporary retreat to the mid-139 yen level. However, the pair swiftly regained strength during the New York session, reclaiming the 140 yen level. This resurgence was propelled by the release of the April Personal Consumption Expenditures (PCE) deflator, which reinforced the notion of persistent inflation and subsequently bolstered the demand for USD/JPY.
There has been a significant surge in market expectations for additional rate hikes by the Federal Reserve (Fed). The latest figures from the PCE deflator, a preferred inflation indicator employed by the Fed, have reinforced these expectations. As a result, the probability of a rate hike during the June Federal Open Market Committee (FOMC) meeting now exceeds the likelihood of rates remaining unchanged, hovering around 66%.
Negotiations concerning the US debt ceiling issue have reached a critical juncture, with reports indicating an imminent agreement on a two-year increase in the debt ceiling coupled with spending restraints. Economists speculate that the final agreement will likely be announced on either the 27th or 28th of this month. However, a comprehensive consensus has not yet been achieved, and discrepancies persist regarding the scale of spending restrictions.
In the meantime, the EUR/USD pair continues to seek support on the downside, briefly extending its decline to approximately $1.07. Since the European Central Bank (ECB) meeting on May 4th, the euro has experienced a downward trend against the dollar, hinting at the potential for further declines.
Short-term fair value models suggest that the current level is appropriate. However, positioning data reveals that a broad spectrum of speculators currently holds the largest long positions in EUR/USD since October 2020. Consequently, the likelihood of expanding long positions from this point is low, and a reduction in long positions could contribute as an additional factor driving further declines.
Although the decline in the GBP/USD pair has momentarily halted, the overall trend remains bearish, with the pair trading around the $1.23 level. Attention is now focused on the 100-day moving average, which approaches the upper half of the $1.22 range. Market participants will closely monitor whether the pair will be tested in the forthcoming weeks.
Yesterday, the release of UK retail sales figures for April exceeded expectations, recording a 0.5% increase compared to the previous month. UK retail sales are measured based on quantity statistics. Some experts assert that the UK retail sector is poised for recovery following last year’s slump. There is a growing sense of confidence that the year-long downturn in the UK retail industry is gradually coming to an end.
Retail sales have observed a slight upturn since reaching a nadir in December, and consumer confidence is beginning to revive. Despite the continued rise in food prices, the growth in real wages, coupled with the decline in energy prices, is anticipated to considerably narrow the negative gap over the next few months. While there may be occasional fluctuations stemming from the impact of King Charles’s coronation ceremony, past experiences, such as the temporary bank holiday following the passing of Queen Elizabeth, suggest that increased food sales can offset the decline resulting from temporary store closures, leading to a positive year-on-year comparison.
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