The United States Dollar’s week-long winning streak has finally snapped this morning, as USD retreated against all G10 currencies.
Japanese and Chinese currency authorities finally added some real support for their ailing currencies, and the Dollar Spot Index (DXY) fell nearly half a percent through the Asian and European morning sessions. Comments from US Treasury Secretary Janet Yellen also impacted the Buck, stating she feels “very good” about containing inflation and avoiding a recession. US equities are set to open slightly higher this morning, contrasting with other indices around the world.
While the moves from China and Japan are still verbal rather than actual policy changes, as of now, it appears both nations are prepared to take tangible steps to prop up their underperforming currencies. Bank of Japan Governor Kazuo Ueda, in particular, put forth some quite hawkish statements, saying, “if the BoJ becomes confident prices and wages will keep going up sustainably, ending negative interest rate is among the options available.” Markets now see a real possibility that Japan will have a positive interest rate by the end of this year, giving the Yen its first substantial boost in nearly a year. Not to be outdone, Chinese CPI data released Saturday showed that price growth finally moved back into positive territory, and the PBoC also reiterated its commitment to stabilizing the Yuan.
Through the rest of this week, the European Central Bank will be the star of the show, meeting Thursday, as Fed officials enter their media blackout period before the US central bank releases its decision on the 20th. Crucial US CPI figures for the month of August are also due out Wednesday, shaping up to end the week full of volatility.
What to Watch Today…
- No major economic events are scheduled for today
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Australian and New Zealand Dollars posted gains against USD of 0.9% and 0.6%, respectively, on the heels of strong hawkish commentary out of Asia. The Antipodean nations’ trade ties to both China and Japan are of utmost importance when considering price movements for their currencies, and support for JPY and CNH translates nearly directly to strength in AUD and NZD. Thursday’s jobs report from Australia could break the currencies out of their current ranges.
After closing last week down north of a percent against the USD, the Pound Sterling has finally found some strength this morning and recovered 0.5%. As traders reprice odds of a US rate hike by November, expectations for the Bank of England’s decision next Thursday remain relatively steady, with at least two more 25-basis-point hikes expected this year. The macroeconomic picture in the UK remains quite precarious, though, so GBP has limited upside even with this expectation.