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Customs data showed that Switzerlands gold exports to the United States in August fell sharply by more than 99% from the previous month to 0.3 tons.1. Decision Background: Wednesdays data showed that UK inflation remained high at 3.8% in August, nearly double the Bank of Englands 2% target. Services inflation remained elevated, while inflation expectations rose. Economic growth slowed in the second quarter, with demand showing signs of weakness. 2. Interest Rate Level: The market generally expects the Bank of England to hold interest rates steady at 4% at this meeting. Key focus will be on guidance for further easing this year. 3. Vote Split: The market expects a 7-2 vote to keep interest rates unchanged (compared to a 5-4 split in August), with Taylor and Dhingra dissenting (Taylor voted for a 50 basis point cut in August); Deputy Governor Ramsden may also join the dissenting vote. 4. Forward Guidance: The Bank of England stated in August that "the restrictiveness of monetary policy has decreased," which the market interpreted as hawkish. This meeting will highlight whether this statement appears again or is removed or weakened. 5. Quantitative Tightening: Due to heightened bond market volatility (earlier this month, 20- and 30-year bond yields rose to their highest levels since 1998), the market expects the Bank of England to reduce its annual bond reduction from £100 billion to £60 billion to £75 billion. It is also likely to limit sales of long-term UK government bonds, favoring shorter-term bonds. 6. Market Expectations: Currently, the market generally expects the Bank of England to maintain interest rates unchanged this year, with a small chance of a 25 basis point cut. A sustained cycle of rate cuts will begin in 2026, with cumulative reductions of approximately 50 basis points.On September 18th, economists at ING Bank stated in a report that downside risks to the US job market were the primary rationale for the Federal Reserves decision to cut interest rates; this rationale is unsurprising given recent weak employment data. Federal Reserve Chairman Powell described the rate cut as a "risk-management-based rate cut" because, on the surface, the US economy appears to be in decent shape. However, economists noted that a deeper analysis reveals a shift in the situation, most notably in the job market. The economists also stated that the Feds upward revision of its growth and inflation forecasts, while simultaneously lowering its unemployment forecast, suggests that policymakers believe that swift and forceful action in the coming months will yield tangible results for the economy. They believe the Fed will ultimately cut interest rates by more than currently implied.Novo Nordisk (NVO.N) continued to rise in pre-market trading, currently up 4.7%, after the company released results of a study on semaglutide.On September 18th, after the Federal Reserve cut interest rates by 0.25 percentage points on Wednesday, market sentiment improved and the cost of insuring euro-denominated credit against default declined. The Feds rate cut is boosting global investment appetite for risky assets. Data from S&P Global Market Intelligence showed that the European Cross Credit Default Swap Index, a measure of credit default swaps on euro high-yield bonds, fell 3 basis points to 248 basis points.

USD/JPY falls to a two-month low at 131.50 owing to decreasing rates and recession concerns

Daniel Rogers

Aug 02, 2022 15:11

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During Tuesday's Asian session, USD/JPY bears hold dominance at the lowest levels in eight weeks as the pair flirts with the 131.50 barrier. Recent weakening in the pair may be linked to negative rates and recent good news on Japan, not to mention inconsistent Fed and China-related rhetoric.

 

US 10-year Treasury rates touched a four-month low of roughly 2.58 percent the day previous, as US economic data heightened concerns of a slump. As traders awaited the announcement of vital US employment numbers for July on Friday, the dollar dropped. In spite of this, the US Dollar Index (DXY) plummeted to a new monthly low before bouncing off 105.25 on Monday.

 

In July, the US ISM Manufacturing PMI fell to its lowest level since January 2020, as the activity index fell from 53.0 to 52.8. However, the actual figures outperformed the market projection of 52.0. Additionally, final readings of the US S&P Manufacturing PMI dipped below early predictions of 52.3 to 52.2, compared to 52.7 earlier. In addition, Germany's Retail Sales plummeted 8.8 percent year-over-year in June, compared to a market forecast of -8.0 percent and a prior decrease of -3.6 percent.

 

It should be remembered that the second straight quarterly contraction in US Gross Domestic Product (GDP) caused a "technical recession" and weighed on the US dollar throughout the preceding week. Fed Chair Jerome Powell's indirect warnings that the hawks are losing momentum were in the same tone.

 

On a separate page, Reuters claims three sources familiar with the issue as claiming that US House of Representatives Speaker Nancy Pelosi was slated to visit Taiwan on Tuesday, despite Chinese vows to never "sit idly by" if she made the trip to the self-governed island claimed by Beijing.

 

At home, speculations of an increase in Japanese salaries and challenges to the Bank of Japan's (BOJ) cheap money policies appeared to have sunk the USD/JPY exchange rate, probably due to widespread inflation anxieties. Recent estimates from Nikkei show that the average minimum wage in Japan will climb by a record 3,3 percent in the fiscal year ending in March 2023. The newspaper also noted, "A Japanese panel is aiming to enhance the average minimum wage by 31 yen."

 

Wall Street concluded with minor losses, but 10-year Treasury rates struck a four-month low of approximately 2.58 percent. In spite of this, as of press time, the S&P 500 Futures indicate moderate losses of around 4,120.

 

In the near future, the words of Chicago Fed President Charles L. Evans and Federal Reserve Bank of St. Louis President James Bullard will impact the course of the USD/JPY.


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