Forex

Japanese authorities intervened in the FX market on Thursday to support the Yen, but this may do little to contain the pair's advance, as the BoJ-Fed policy differential is chaotic

The BoE hiked its official bank rate by 50bps to 2.25%. Three of the nine MPC members voted for 75bps, with one member preferring a 25bps move. Furthermore, the central bank expects an 11% inflation rate in October, reduced from 13%. However, the bank statement maintained, "should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee will respond forcefully."

Japanese authorities have intervened and defended the yen, stopping a potential capitulation by USDJPY to 150. As a result, selling into the market began near the 145.75 level, pushing the price down to 140.64. This action comes after BoJ's Kuroda reiterated to continue monetary easing, initially sparking a selloff in the yen. Given this, it will be unsurprising if the Japanese Finance Ministry regularly influence price levels over the medium…

The currency pair weakened following an announcement by Russian President Putin of a partial mobilisation of troops, calling on 300,000 reservists. Recently, Russia has lost ground to the Ukrainian forces.

The US Federal Reserve will announce its latest policy decision on Wednesday, with markets pricing in another outsized rate hike and EUR/USD having a mixed week around parity so far

The current inflation tends to have a broad sticky element to it. This price resilience will likely concern the Fed until it shows moderation. However, per the preliminary University of Michigan Inflation Expectations survey, consumer expectations moderated to 4.6% (4.8% - previous). Moreover, the pricing elements from last week's Empire State and Philly Fed Manufacturing Indexes indicate moderation. Therefore, 75bps seems to make more sense at this stage.

The New Zealand economy grew more than expected in the second quarter, as today’s data showed and the pair consolidates just off Wednesday’s 2+ years low

The US interest rate is a crucial driver of financial markets in the current environment. This dynamic is despite the communication out of the ECB. I.e., the chart above shows the US real rate and its correlation coefficient (cc) with the EURUSD. The cc is at -58% and has been robust since the real rate turned positive at the end of April (green dashed line). Therefore, the current upswing in…

Yesterday’s acceleration in US core inflation led to another resurgence, but Japanese officials provide renewed verbal support to the battered Yen, sending the pair lower today

Whilst the greenback has pulled back over the last two weekly candlesticks (green square), it has a high correlation coefficient to real rates, at 77%. As such, we are interested in the real rate's reaction to any news release that may impact expected Fed monetary policy, such as today's CPI release.