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The dollar-yen is currently witnessing a prevailing buying trend
demonstrating heightened sensitivity to Governor Ueda's recent remarks
“The dollar-yen is currently witnessing a prevailing buying trend, demonstrating heightened sensitivity to Governor Ueda’s recent remarks”
During today’s New York trading session, the dollar-yen has rebounded to the 139-yen range, with buying activities dominating the market. There was a temporary dip to the 137-yen range. Notably, the US stock market experienced a significant surge today, alleviating the market’s risk aversion sentiment. This response is widely attributed to Bank of Japan Governor Ueda’s statements made at the G20 summit.
Governor Ueda emphasized that the Bank of Japan’s steadfast commitment to continuous monetary easing remains unchanged, provided there is no shift in the recognition of the remaining distance to achieve the sustainable and stable 2% inflation target. Speculative reports have emerged suggesting that the Bank of Japan may revise its inflation outlook for the fiscal year 2023 in the upcoming outlook report, fueling expectations that they might expand the allowable fluctuation range of the yield curve control (YCC) in the forthcoming meeting. However, it should be noted that the aforementioned statement does not directly endorse these expectations.
Nonetheless, despite the recent abatement of the sharp decline in the dollar-yen following this month’s US employment statistics, cautiousness prevails regarding the potential for significant upside movement. Robust buying momentum has not yet been observed. Market participants are eagerly anticipating the catalyst that might provide further direction, with next week’s Federal Open Market Committee (FOMC) meeting being the focal point.
Today, June’s US retail sales were unveiled, displaying a 0.2% month-on-month increase, which fell below market expectations. However, when excluding sales from restaurants, automobiles, building materials, and gasoline, the retail sales showed a robust 0.6% month-on-month growth, surpassing forecasts. These results highlight the continued support from a resilient labor market and easing inflationary pressures, bolstering consumption.
The euro-dollar currency pair encountered some selling pressure, leading to a decline to the mid-1.12 dollar range. As the forex market cautiously prepares for next week’s FOMC and ECB policy meetings, the upward movement of the euro-dollar has momentarily stalled. However, no significant downward movement has been observed, and the currency pair continues to trade at elevated levels.
Currently, market confidence in an ECB rate hike at the upcoming policy meeting is high, with attention shifting to developments in September. Although the overall inflation index indicates signs of deceleration, the core inflation index remains at elevated levels. From a purely inflation perspective, a rate hike in September appears justifiable. Nonetheless, concerns surrounding future economic prospects, especially in relation to Germany, have rendered market predictions for September uncertain.
Today, comments from Klaas Knot, President of the Netherlands Central Bank, known for his hawkish stance in the past, were released. Knot stated, “A rate hike in July is deemed necessary, but any further rate increases beyond that are mere possibilities, not certainties.” This slightly more cautious stance has drawn significant attention from the market. During next week’s ECB policy meeting, President Lagarde might conduct a press conference that leaves possibilities open for both rate hikes and maintaining the status quo post-September.
During NY trading, the pound-dollar experienced selling pressure, leading to a decline to the mid-1.30 dollar range. The market is now eagerly awaiting the release of the UK Consumer Price Index (CPI) tomorrow. If the UK CPI suggests service inflation surpassing 7%, the Bank of England may be compelled to take decisive action to address inflation, potentially leading to a substantial 0.50 percentage point rate hike during the Monetary Policy Committee (MPC) meeting on August 3rd. Notably, the UK CPI has consistently outperformed market expectations in the past four releases.
Given the sustained high level of UK CPI and robust wage growth, there are considerable expectations in the market for an impending rate hike by the Bank of England.
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