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On September 12th, CICC Research pointed out that the US August CPI rose 0.4% month-on-month (0.1% in the previous month) and 3.4% year-on-year (3.4% in the previous month); core CPI rose 0.3% month-on-month (0.2% in the previous month) and 2.4% year-on-year (2.5% in the previous month), slightly higher than market expectations. The month-on-month rebound in inflation was mainly due to rising energy prices, telecommunications price increases, and continued inflationary pressure from AI. CICC believes that this CPI report has reached the threshold for the Federal Reserve to raise interest rates, and therefore expects the Fed to raise interest rates by 25 basis points at its meeting on September 16th. In addition, the Fed may lower the unemployment rate and raise its inflation forecast, and the dot plot may raise the interest rate path for 2027 and 2028, signaling a longer period of tightening. A more hawkish risk scenario is that there will be another rate hike this year or next year. If this occurs, the market may repric a longer-term rate hike cycle.September 12th - On September 12th, the Beijing-Xiongan Express Line, constructed and managed by Xiongan Group Rail Transit Company, officially commenced full-line trial operation. As a landmark project of the Beijing-Xiongan one-hour metropolitan area, this full-line trial operation marks a crucial step towards the integrated operation of the Beijing-Xiongan Express Line and the Beijing Subway Daxing Airport Line, accelerating the transformation of the "Beijing-Tianjin-Hebei on Rails" from blueprint to reality.September 12th - According to Shenzhen Customs, in the first eight months of this year, Shenzhens import and export value with other BRICS member countries reached 246.89 billion yuan, a year-on-year increase of 11.5%. Among them, the export value reached 207.77 billion yuan, a year-on-year increase of 7.5%; and the import value reached 39.12 billion yuan, a year-on-year increase of 38.9%.September 12th - According to the Financial Times, European Central Bank (ECB) Governing Council member Kocher warned that if oil prices continue to hover around $100 per barrel by the end of the year, the central bank will have to raise interest rates further. Following the ECBs second increase in borrowing costs on Thursday, Austrian central bank president Kocher stated that "inflation risks are higher than a few months ago" due to continued tensions in the Middle East and persistently high energy prices. Since the collapse of the US-Iran ceasefire agreement in early July, oil prices have risen by more than 45%, breaking through $100 per barrel. Since June, European natural gas prices have almost doubled, approaching €80 per megawatt-hour. Kocher stated, "If oil and gas prices develop in an unfavorable scenario, then... monetary policy must take these changes into account." He added that inflation risks will further intensify.According to the Financial Times, the US has restricted the timeframe for air defense operations to allow oil tankers to pass through the Strait of Hormuz.

With rates rising, the GBP/JPY continues to recover to 164.00, and focus shifts to Downing Street

Alina Haynes

Jul 08, 2022 11:30

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GBP/JPY maintains its gains from the previous day at about 163.60 during the opening hour of Friday's Tokyo trading session. The cross-currency pair recently celebrated declining political unrest in Downing Street, rising US Treasury rates, as well as the depreciation of the US dollar, recalling buyers during the dull Asian session.

 

The day before, under intense pressure from his cabinet and many resignations, UK Prime Minister Boris Johnson finally announced his resignation as leader of the UK Conservative Party. The rebels are relieved by the action, and it ensures little political damage. The risk-taking nature is still being challenged by the search for a replacement and a novice cabinet with numerous new appointees, though.

 

The day before, risk aversion also diminished as well-known figures repeated previous pronouncements in an effort to allay concerns about a recession. News regarding China and conflicting statistics from the United States also helped the market.

 

According to Bloomberg, China will raise $220 billion through unprecedented bond sales as stimulus. Officials from the United States and China will meet in person after their most recent video session, the same source states. Analysts, on the other hand, are less thrilled. Beijing is hoping that by fixing the supply-chain dilemma, it would be able to help the United States mitigate its inflation problem.

 

Notably, the GBP/JPY pair is able to maintain its strength due to the recently reduced Japan Current Account balance for May, which was 128.4 billion vs the expected 185.6 billion. The market's expectation of today's US jobs report and the broad dollar slide may also be cited as reasons driving up the price of the pair recently.

 

These transactions result in a resumption of the rising trend in US Treasury rates and a higher closing price for Wall Street benchmarks. But as of the time of publication, S&P 500 Futures are slightly down.

 

GBP/JPY traders should monitor UK politics and Brexit news, as well as economic worries, for fresh inspiration.

 

GBP/JPY buyers are propelled toward a two-week-old resistance line around 164.15 at the latest if there is a clear break over the 50-day simple moving average, which is currently at 162.85 at the time of publishing.


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