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The focus was on the unexpectedly strong retail sales data for September
which led to an increase in U.S. bond yields and prompted some buying of the dollar against the yen.
“In today’s New York foreign exchange market, market attention was drawn to the surprisingly robust retail sales data for September”
This unexpected strength prompted an uptick in U.S. bond yields and triggered renewed interest in the dollar against the yen. The USD/JPY pair momentarily touched the mid-149 yen range and approached the critical 150-yen mark once again. Nonetheless, the dollar’s strengthening lacked a resounding surge, and an air of caution continues to pervade the market.
Despite the ongoing tensions in the Middle East, diplomatic efforts persist, which has left market participants in a state of vigilant observation. Given the alignment of both the dollar and the yen in their current direction, the USD/JPY exchange rate remains in a state of impasse.
This week, we anticipate Federal Reserve Chairman Powell’s speech scheduled for the 19th. Although recent inflation-related indicators have indicated persistent inflation, the market anticipates no major shift in the Fed’s policy stance. It is expected that Chairman Powell’s speech will likely maintain a consistent tone.
In contrast, during the London trading hours, reports emerged indicating that the Bank of Japan is considering an upward revision of its inflation outlook for fiscal year 2024 to surpass the 2% threshold. This news is associated with the forthcoming Outlook Report to be discussed at the Bank of Japan’s monetary policy meeting later this month. The report hints at an upward adjustment in the consumer price index (core CPI, excluding fresh food) for 2023 and 2024. In response to this report, the USD/JPY pair briefly demonstrated yen strength, momentarily dipping below the 148 yen mark.
With the Federal Reserve’s policy outlook largely settled, the USD/JPY exchange rate appears to be particularly responsive to developments from the Bank of Japan. Should inflation for fiscal year 2024 remain at or above the 2% target, it would signify sustained inflation and potentially reduce the necessity for the current ultra-accommodative monetary policies. The outlook for fiscal year 2025 is expected to remain largely unaltered, maintaining the current projection of 1.6%.
Over in the Eurodollar market, there was a prevailing trend of buying, leading to a temporary return to the mid-1.05 dollar range. The 21-day moving average for today hovers around 1.0575 dollars, though the Eurodollar briefly surpassed this level.
Today, the German ZEW Economic Sentiment Index for October was released, showing a reading of -1.1. This marked the sixth consecutive month of negative readings, yet it notably surpassed market expectations. Despite diminishing inflation expectations, economic sentiment in Germany exhibited signs of improvement. The ZEW Economic Sentiment Index reflects the economic outlook for the coming six months.
Despite concerns surrounding the potential impact of the situation in the Middle East on growth prospects, the repercussions have, thus far, remained relatively contained.
The British pound encountered a brief drop to around 1.2135 dollars, followed by a rebound to approximately 1.22 dollars. The 21-day moving average for today is positioned around 1.2215 dollars, and market attention is concentrated on whether the pound can sustain its position above this threshold.
Today, the UK’s Office for National Statistics (ONS) published data on the weekly average earnings growth rate (excluding bonuses) for the period spanning June to August. The data revealed a year-on-year increase of 7.8%, albeit slightly decelerating compared to the prior revised figure of 7.9%. This reduction in the growth rate, the first since January, hints at the possibility of a peak having been reached. Some analysts have even suggested that this data bolsters the likelihood of the Monetary Policy Committee (MPC) of the Bank of England opting to postpone an interest rate hike at its upcoming meeting on November 2nd.
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