On Friday, the greenback remained on tenterhooks, finding itself on track for a moderate weekly soar ahead of Fed Chair Janet Yellen's long-awaited speech that some believe could ensure clarity on whether American interest rates will soar this year or not.
The US dollar dipped 0.1% against the Japanese yen at 100.46 yen, while it remained intact against the euro at $1.1290.
The dollar index, estimating the greenback’s value against six key counterparts, slumped 0.1% to 94.718.
Later on Friday, Fed Chair is expected to deliver her speech at a global major bank meeting in Jackson Hole, Wyoming. Yellen could provide a clear signal that the Fed is all geared up towards a rate hike this year, although many experts are assured that she’ll stick to her less concrete stance that monetary policy appears to be data-dependent and a rate lift is probable.
The anticipation is quite exaggerated, especially considering that Yellen is considered to be one of the most balanced and pragmatic speakers.
Yen rebounds in Asia
Today, the Japanese yen rebounded during Asia trade after consumer prices data from Tokyo revealed that the core measure decreased more than expected. Moreover, attention is currently focused on a gathering of key bankers in the US state of Wyoming later in the day with the Fed Chair expected to provide fresh views.
The currency pair USD/JPY traded at 100.47 with a 0.05% sink, while AUD/USD achieved 0.7629, rising 0.14%.
In Japan, July’s national core CPI headed south 0.5% year-on-year, which is more than the 0.4% decrease observed, while national CPI lost 0.4% as expected in data, which is currently calculated under a 2015 base year with updated weightings.
The US dollar index, estimating the greenback’s value against a trade-weighted basket of six key currencies, sank 0.06%, getting to 94.62.
The annual economic symposium has found itself in the spotlight with Fed Chair’s opening remarks on Friday. Other major bankers are expected to discuss and also consider the future of monetary policy in the aftermath of the financial downtime and a low interest rate era.
On Tuesday, the evergreen buck tumbled against the Japanese yen, while the New Zealand dollar went up right after the country’s major financial institution informed that they don’t see the necessity for a rapid succession of interest rate drops.
The evergreen buck lost 0.1% to 100.220 against the safe-haven Japanese yen amid a pullback in Tokyo shares.
The greenback had soared to nearly 101.00 yen overnight, reacting to hawkish-sounding comments by Federal Reserve Vice Chair Stanley Fischer.
The euro grew 0.1% to $1.1332, thus stepping off an overnight minimum of $1.1271.
The Australian dollar ascended 0.1%, being worth $0.7638 , moving up on the coattails of the New Zealand dollar.
The New Zealand dollar appeared to be a relatively big mover in a subdued Asian trading session.
The New Zealand dollar earned 0.6%, being worth $0.7308 after Reserve Bank of New Zealand Governor Graeme Wheeler informed that the current interest rate track suggests further monetary easing, although he didn’t see the need for an instant series of rate drops.
Kiwi rises further along with yen and Aussie
The New Zealand dollar kept rising in Asia, notwithstanding remarks from RBNZ Governor Graeme Wheeler on the scope for further interest rate drops, while the Australian dollar and the Japanese yen ascended too, following a light regional data day.
The currency pair NZD/USD was worth 0.7298, rising 0.36%. Meanwhile, AUD/USD traded at 0.7635, demonstrating a 0.20% soar, while USD/JPY was worth 100.13, tumbling 0.20%.
The US dollar index, gauging the US dollar’s value against a trade-weighted basket of six key counterparts, traded 94.46, descending 0.06%.
Traders are currently focused on a highly anticipated speech by Fed Chair Janet Yellen at the annual gathering of top major bankers as well as economists in Jackson Hole, Wyoming, this week for new signals on the timing of the approaching US rate lift.
Overnight, the evergreen buck pared profits against the other key currencies in subdued trade on Monday, though hopes for a probable American rate lift before the end of the year still ensure support to the US dollar.
On Friday, the evergreen buck held firm, backed by comments from a Fed speaker, suggesting that an American interest rate hike this year is still real because inflation pressure keeps growing.
American retails sales data along with a series of Chinese economic indicators due later in the day will be the market's next key focus points, though trading could be slow with many investors in Japan on leave this week for the summer holidays.
The dollar's index against a basket of six key counterparts edged up to 95.906 from this week's minimum of 95.442 achieved on Wednesday, though it will probably conclude the week lower, having lost approximately 0.3% so far.
The evergreen buck appears to be on a much more substantial footing than when financial markets were worried about the actual impact of Brexit. It might take time a bit but its direction is definitely looking upwards.
Against the Japanese yen, the evergreen buck firmed to 101.83 yen from this week's minimum near 101 yen, although it stood still on the week so far.
Aussie goes down on disappointing China data
The Australian dollar sagged on gloomy data out of key trading partner China on industrial output, retail sales as well as fixed-asset investment.
China’s fixed-asset investment for July soared 8.1%, below a pace of 8.8% observed year-on-year, while industrial production acquired 6.0%, also below an expected at 6.1% year-on-year revenue, while retail sales headed north 10.2% under the expected up 10.5% year-on-year growth observed.
The currency pair AUD/USD traded down 0.26%, hitting 0.7190, while USD/JPY was worth 102.15, up 0.19%.
Earlier, in New Zealand, the Business NZ PMI tumbled to 55.8 for July, sagging from a previous reading of 57.7. Moreover, core retail sales for the second quarter leapt 2.6%, better than the quarter-on-quarter reading observed up 1.1%. As for full retail sales, they spiked too, approximately up 2.3%, compared to a 0.9% quarter-on-quarter revenue observed and an annual pace of 6.0%, thus outpacing the 4.9% expected from the same quarter a year ago.
The currency pair NZD/USD hit 0.7195, showing a 0.21% sag after of the figures and also a statement that the major bank would delay measures just to curb house loans.
Here are the most important details of the Bank of Japan Governor Kuroda’s press conference:
- There will likely be a trend of Japanese economy’s moderate expansion. Inflation will reach 2% target in 2017 fiscal year.
- The BOJ will take additional easing steps if necessary to achieve the price target.
- The BOJ will continue conducting qualitative and quantitative easing (QQE) and negative interest rates as long as needed to meet the inflation target.
- QQE hasn’t reached its limits.
- Future mon pol depends on next month's review of past monetary policy steps.
- The BOJ increased monetary stimulus enough to deal with existing risks.
What did the BOJ do? Details of decision
The Bank of Japan eased policy at today’s meeting, but did less than the market has expected. The regulator doubled purchases of exchange-traded funds (ETF), so that its total holdings will increase at an annual pace of 6 trillion yen ($58 billion), up from the current 3.3 trillion yen. The BOJ also doubled the size of a lending program for local companies to $24 billion. The decision was not unanimous; the vote count was 7 against 2. Japanese central bank cited the Brexit vote, slowdown in emerging economies and market volatility as the reason why it had to act.
At the same time, the regulator kept rates steady and its base money target remained at 80 trillion yen and didn’t change the pace of purchases for other assets including Japanese government bonds. Yet, the BOJ did promise to conduct a thorough assessment of the effects of negative interest rates and its massive asset-buying program.
USD slumps over 1% against JPY amid gloomy BOJ stimulus
On Friday, the major American currency edged down over 1% to three-week minimums against the Japanese yen, following the stimulus measures announced by the BOJ. The BOJ’s plan disappointed financial markets. Meanwhile, traders waited for the release of American economic growth data a bit later today.
During late Asia trade, the currency pair USD/JPY hit 102.72, the pair’s lowest value since July 12. After a while the pair consolidated at 103.69, dropping 1.50%. Besides this, the pair was likely to gain support at 102.41, the minimum of July 12 as well as resistance at 106.54, the peak of July 27.
At the conclusion of its monthly policy gathering on Friday, Japan’s major financial institution announced a moderate surge in purchases of exchange-traded funds, although maintained its base money target at about 80 trillion yen and the pace of purchases for other assets.
The major bank also kept negative interest rates intact at -0.1%.
Additionally, the move ruined hopes for a stimulus package of approximately 28 trillion yen promised by Shinzo Abe, Japan’s Prime Minister earlier in the week to drive the national economy.
On Friday, the Japanese yen earned further on a slew of data from Japan across retail sales, consumer prices, industrial production and household spending and all ahead of a closely-watched major bank policy review.
The currency pair USD/JPY was worth 104.19, showing a 1.03% tumble, while AUD/USD soared 0.36%, trading at 0.7530.
Later during the trading session, the Bank of Japan will disclose its latest monetary policy statement as well as interest rate decision.
Earlier in Japan, in June, household spending edged down 1.1% in month-on-month, compared to an expected 0.4% revenue with year-on-year demonstrating a 2.2% sink. As for national CPI, it slumped 0.4% in June year-on-year, thus matching expectations, while the unemployment rate descended to 3.1% from 3.2%.
Apart from that, in Japan, industrial production headed north 1.9%, which is much better than the 0.7% revenue observed for June month-on-month. Additionally, retail sales sagged 1.4%, slower than the 1.5% drop expected.
The Bank of England (BoE), European Central Bank (ECB) and most recently, the US Federal Reserve, have all issued their most recent monetary policy statements in the past two weeks. All of these three major central banks opted for inaction – the BoE and ECB refrained from implementing post-Brexit stimulus measures for the time being while the Fed again deferred a long-postponed rate hike. Friday finally brings the Bank of Japan’s (BoJ) highly-anticipated policy statement, which will most likely buck this recent trend of inaction.
On Wednesday, Japanese Prime Minister Shinzo Abe revealed an unexpectedly sizable 28 trillion yen government stimulus package, which placed immediate pressure on the BoJ to follow suit by expanding its stimulus program. The key question weighing now on the global markets, and the yen in particular, is the extent to which the central bank will cooperate with Abe’s aims to boost Japanese economic growth.
Most analysts expect some form of stimulus from the central bank, including possible asset purchases and/or a further interest rate cut, but the uncertainty lies in the magnitude of these actions. This magnitude will likely serve as one of the main drivers of market movement on Friday and into next week for both the Japanese yen and major equity markets. Of course, in the very unlikely event that there is no BoJ action at all, volatility in the markets should be particularly pronounced, potentially leading to a dramatic surge for the yen.
As usual, USD/JPY will be one to watch, as it can serve as a good barometer of yen movement. Another key currency pair that should also see high volatility during this event, however, will be EUR/JPY, especially since Friday also brings a solid series of European economic data.
In the event of more comprehensive stimulus than expected from the BoJ on Friday, the yen will likely be pressured to retreat sharply, pushing EUR/JPY to rise and extend its rebound from recent multi-year lows. In the opposite event of a substantially lighter stimulus package that disappoints Abe and other Japanese government officials, the yen could resume its longer-term strengthening, potentially pressuring EUR/JPY to continue its downtrend of the past year.
This EUR/JPY downtrend is clearly framed by two key trend lines that have shown an acceleration of the bearish trend this year. Most recently, the currency pair established a post-Brexit multi-year low around 109.50 in late June. This was followed by a rebound within the past three weeks that boosted EUR/JPY up to a key 61.8% Fibonacci retracement level before falling back.
Currently, in the immediate run-up to the BoJ policy statement, the currency pair is bumped up against its 50-day moving average to the upside. To the downside is the major 115.00 support level. Depending on the outcome of the policy statement, any surprise could likely lead to a breakout price move. With less-than-expected stimulus, EUR/JPY could break down below 115.00, which could put it on track to target downside support around 111.00, followed by a potential resumption of the entrenched bearish trend. With more-than-expected stimulus, EUR/JPY could rise above its 50-day moving average, in which case, the next major resistance targets are around the 119.00 level, followed further to the upside by the noted accelerated downtrend line.
The continuous price rise of the dollar has temporarily halted when greenback dropped again against most of the major currencies during yesterday's trading session due to taking profit by investors after US dollar index measuring the strength of the dollar against a basket of currencies, goes to its highest level for 4 months. Besides, the carefulness before Fed meeting result made investors reduce bets on the greenback.
The result of periodic policy meetings of Fed will be announced today, and the agency is expected to keep interest rates at this meeting. However, investors will closely watch policy statements issued after the meeting of Fed in order to know about the current situation and prospects of the US economy. The recently released data show retail sales, consumer prices, and industrial production in the US in June rose further. Meanwhile, reports of non-agricultural jobs in June announced earlier this month, also stressed the labor market is recovering strongly and allay concerns about the deceleration of economic growth. The positive data in the US economy prompted investors to increase expectations that Fed will raise interest rates before the end of this year.
According to observers, after the relatively peaceful attitude in June, this announcement of Fed may indicate a more optimistic tone before the improvement of recent economic data. However, do not exclude the possibility that the Fed expressed a cautious view when the agency is awaiting the evaluation of the impact of the UK to leave the European Union for the outlook of the US economy before making any orientation interest rate policy in the coming period.
The yen this morning decreased sharply after Reuters reported the Japanese government is expected to issue 50-year-bonds to support the big fiscal stimulus program which will be launched. However, the currency subsequently bounced back as Japanese Finance Ministry denies rumors related to 50-year bonds. Also this morning, Prime Minister Shinzo Abe said the fiscal stimulus package in this time values over 28 trillion yen (265 billion dollars) and details will be announced next week. Information about the strong package of government will be announced before the meeting shelf of the Central Bank of Japan (BOJ) held on Friday, 29th of July. Analysts predict the BOJ will ease monetary policy further and most likely the agency will increase the size of the bond purchase program from 80 trillion yen per year to 100 thousand billion yen while reducing interest rates on deposits from minus 0.1% to minus 0.3%.