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On May 8, Seema Shah, chief global strategist at Principal Asset Management, said that the Federal Reserve has fallen into an almost desperate situation, and its dual missions - full employment and stable prices - may go in opposite directions. However, the incredibly uncertain US government policies will determine the timing and magnitude of these changes. Trumps tough stance on tariffs has further exacerbated the Feds embarrassing situation. In this case, the Fed can only choose to stand idly by. Rate cuts are necessary, but the Fed seems to increasingly need to wait until the end of the third quarter for the window of opportunity to open.On May 8, Steve Matthews, investment director of Canada Life Asset Management, pointed out that a 50 basis point rate cut will be an important topic at the Bank of Englands upcoming meeting, reflecting the change in the economic background since Marchs standstill. Global trade disruptions and signs of economic slowdown - especially the decline in US quarterly GDP data - have put a larger interest rate cut in the spotlight. Given that UK CPI inflation is now basically up to standard, MPC members Dingla and Mann are expected to support a 50 basis point rate cut, opening the door to a possible unexpected large rate cut. However, Matthews predicted that this camp is expected to be vetoed by the majority vote in the end, thus passing a 25 basis point rate cut resolution, bringing the base rate to 4.25%.Germanys industrial output in March adjusted for working days was -0.2% year-on-year, in line with expectations of -2.7% and previous reading of -4.00%.Ukrainian Air Force: As of 8 a.m. local time on May 8, no Russian missiles or drones were found in Ukrainian airspace.Germanys seasonally adjusted industrial output rose 3% month-on-month in March, the biggest increase since October 2021.

USD/JPY is trading near 141.00, which would signal a return to levels not seen in 24 years

Daniel Rogers

Sep 05, 2022 16:30

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The US dollar/Japanese yen exchange rate is getting closer to last week's 24-year high of 140.80. In the wake of the US dollar index (DXY) hitting a fresh 20-year high of 110.03, the asset is gaining a great deal of momentum. The DXY has been trading at high levels and is expected to continue its upward trend.

 

The DXY has risen to prominence on currency markets as optimism about US employment data (as measured by Nonfarm Payrolls or NFP) has persisted over the previous week. The Fed's satisfaction with the US economy's August job gains is boosting the asset's value (Fed). Even though pricing pressures are having a significant influence on household income, recent depletion signals are not sufficient to persuade consumers to raise their spending habit (quantity-wise). Therefore, higher employment creation will encourage Fed policymakers to sound hawkish without hesitation.

 

Future attention will center on the release of the US ISM Services PMI. As the US economy is recognized for its IT giants and its offering of IT services to emerging nations, the value of the US Services PMI is unusually high. From 56.7, economists expect the economy to slow to 54.9. This may put an end to the DXY's dream rally, and the asset may encounter considerable challenges.

 

Due to the holiday on Monday, the US markets won't be trading, thus the asset's movement will be determined largely by market sentiment.

 

Investors are waiting for Tokyo to release secondary economic statistics on Monday. There is consensus that the Jibun Bank Services PMI will hold steady at 49.2. Although the release of Japan's GDP figures will continue to be a major forthcoming event. The GDP is forecast to increase to 0.7% from 0.5% in the third quarter. The annualized figure, at 2.9%, is much higher than the 2.2% that was previously reported.


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