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On October 30th, the Bank of Japan (BOJ) voted 7-2 to keep its short-term interest rate unchanged at 0.5%, with board members Hajime Takada and Naoki Tamura voting against a rate hike. The BOJs inflation expectations remained stable, while economic growth expectations rose moderately, demonstrating its patience in the face of trade and global uncertainties. In explaining their dissent, Takada stated that Japan had "moved out of deflationary norms" and had largely achieved its price stability target, while Tamura pointed out that "upside risks to prices" brought policy closer to a neutral level. However, the majority chose to remain patient, emphasizing the need for clearer confirmation that wage growth and inflation are sustainably aligned. Policymakers described exports and output as stagnant, with consumption remaining robust despite external headwinds. In its quarterly report, the BOJ stated that underlying inflation may stall in the near term amid slowing economic growth but should gradually stabilize to a level consistent with its 2% target for fiscal year 2027. The board considered economic risks to the downside, while inflation risks were broadly balanced. Uncertainty surrounding trade policy and its potential spillover effects on global prices and markets were key risks requiring vigilance.On October 30th, the Bank of Japan (BOJ) paused its interest rate hikes on Thursday but reiterated that it would continue to increase borrowing costs if the economy performs as it expects. As widely anticipated, the BOJ kept its short-term interest rate unchanged at 0.5%. BOJ board members Naoki Tamura and Hajime Takada opposed the decision, reiterating their September recommendation to raise the rate to 0.75%.The Bank of Japan: There are risks to the future trends of exchange rates and import prices, including international commodity prices.Bank of Japan: Trade policies announced so far may trigger a shift in globalization trends.Bank of Japan: It is worth noting that recent fiscal expansion measures, especially in the United States and Europe, may increase global economic risks.

USD/TRY reestablishes its annual high on route to 17.00, notwithstanding Erdogan's expectation of future inflation moderation

Alina Haynes

Jun 06, 2022 15:25

 截屏2022-06-06 下午3.23.52.png

 

In spite of Turkish currency (TRY) traders' inflation worries and President Erdogan's efforts to appease TRY purchasers, the USD/TRY continues to trade near $16.36, the highest level since 2022. The pair's upward momentum is influenced by Friday's high Turkish inflation data for May, as well as the US dollar's comeback over the last week, not to mention expectations of the Fed's faster/more aggressive rate rises.

 

According to Reuters, "Turkish President Tayyip Erdogan stated on Sunday that inflation numbers from the month of May, when annual consumer prices soared to a 24-year high, indicate that inflation is now on the down." It is noteworthy that the May inflation rate for Turkey increased to 73.5 percent in the most recent report.

 

Reuters also reported that the lira fell by 44 percent last year and has been the poorest performer in emerging markets for several consecutive years, mostly owing to economic and monetary policy worries under the administration of President Tayyip Erdogan.

 

In contrast, the odds supporting a 0.50 percent rate hike by the Federal Reserve in September have lately increased to 75 percent from 35 percent a week earlier, which emphasizes this week's US Consumer Price Index (CPI) data and favors US dollar purchasers. In spite of this, the US Dollar Index (DXY) reversed a two-week downward trend at Friday's close, trading down 0.14 percent intraday near 102.000 as of press time.

 

US Nonfarm Payrolls (NFP) for May came in at 390K, above expectations of 325K but falling short of the upwardly revised prior readings of 428K. In addition, the unemployment rate stayed constant at 3.6% against predictions of a minor reduction to 3.5%. In addition, the US ISM Services PMI dropped to 55.9 in May, compared to the market estimate of 56.4 and the flash reading of 57.1 in April. Following the release of the statistics, Loretta Mester, president of the Federal Reserve Bank of Cleveland, stated that the Fed's only worry is inflation. The officials underlined that the likelihood of a recession has increased.

 

Wall Street benchmarks finished in the negative and US 10-year Treasury rates saw their first weekly increase in three weeks to reflect the risk-averse sentiment of the previous day. However, S&P 500 Futures increased by 0.5 percent to 4,126 and US 10-year Treasury rates fell by 1.3 basis points (bps) to 2.942 percent as per the most recent data available.

 

Amid a pre-Fed blackout for Fed officials and in anticipation of Friday's US CPI, USD/TRY traders should pay attention to risk drivers moving forward.

Technical Evaluation

A successful breach of the prior resistance line from early January, about 16.45 at the time of publication, would lead USD/TRY values toward the $17.00 mark before testing the late 2021 top at $18.36.


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