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USDJPY Experiences Mixed Sentiment around 138 Yen
Pre-FOMC Optimism Grows.
“USD/JPY Hovering around 138 Yen with Mixed Sentiment; Optimism Emerges ahead of Pre-FOMC”
The USD/JPY exchange rate exhibits a lack of clear direction today, rebounding to the 139 yen level during the NY session. Last week witnessed a swift unwinding of yen carry trades and selling pressure on the dollar, but signs of value-buying have emerged near the 200-day moving average. Nonetheless, strong selling pressure limits the upside, pushing the pair back down to the 138 yen range.
Experts speculate that the dollar might find short-term support ahead of the upcoming FOMC meeting next week, during which a rate hike decision is anticipated. Investors approach the FOMC meeting cautiously, potentially leading to a recovery for the dollar to regain some of its recent losses.
While the market generally anticipates a rate hike next week, opinions diverge concerning the post-September outlook. Until the September FOMC meeting, both US employment statistics and the Consumer Price Index (CPI) will be released twice, contributing to a wait-and-see atmosphere.
Following last week’s CPI data, market speculation regarding the possibility of the Federal Reserve halting rate hikes has grown. However, there is also a possibility that the Fed may continue rate hikes post-September. Despite a decline in core inflation, the US labor market remains tight, and other economic indicators display resilience. Importantly, ahead of the upcoming FOMC, FOMC committee members have entered a blackout period and will refrain from issuing statements during this time.
Today, EUR/USD has risen to the mid-1.12 dollar range, but overall, a cautious sentiment prevails. Economists hold a prevailing view that the European Central Bank (ECB) might implement a rate hike in September, raising the deposit rate to 4.00%, signaling a potential terminal rate. With persistent underlying inflation, a shift towards a more hawkish stance than initially expected is observed.
On the other hand, indications of disinflation in the US and skepticism towards rate hikes post-September by the Federal Reserve might lead to short-term weakness for the dollar. Nevertheless, a recovery is anticipated in the second half of the year. In such a scenario, EUR/USD might decline to 1.08 dollars in three months and further to 1.06 dollars by the next year.
As concerns about a potential US economic downturn heighten towards the end of the year, the dollar, being a safe-haven asset, is likely to benefit. Meanwhile, the euro may encounter challenges in the summer and beyond, given indications that the ECB’s rate hike cycle is nearing its peak.
In the cautious market atmosphere prevailing in the forex market, GBP/USD is currently trading in the high-1.30 dollar range. While there has been a temporary pause in the recent rally, technical analysts suggest the possibility of further upside for the pound. GBP/USD recently broke above 1.31 dollars, indicating strong momentum for further gains. Consequently, speculation suggests limited opportunities for retracements, with GBP/USD unlikely to drop below the breakout level of 1.2850 dollars for the next month.
This week, on Wednesday the 19th, the release of the UK Consumer Price Index (CPI) is scheduled. Speculators indicate that this event might potentially lead the Bank of England to a significant 0.50% rate hike. Persistent high core inflation levels may prompt the Bank of England to take resolute action with consecutive 0.50% rate hikes, similar to the previous one, during the Monetary Policy Committee (MPC) meeting on August 3rd. If this week’s UK CPI suggests service inflation of 7% or more, the Bank of England may be compelled to take decisive measures to tackle inflation. Given the continued high level of UK CPI and robust wage growth, expectations for a rate hike by the Bank of England remain high.
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