Forex

The 2-year yield serves as a good general proxy for monetary policy direction. The top chart shows the German 2-year yield, representing European monetary policy, and the chart underneath is the US 2-year yield. Since mid-July, the German 2-year has been trending down and the US 2-year has been trending up.

The pair is running a losing month, which puts it in a precarious position, despite prospects for more tightening by the Bank of England given high elevated inflation and wages

The 10-year real yield, adjusted for inflation, continues to climb. It is trading close to 2% at 1.96%. The last time real yields were at these levels was back in June 2009. This post-inflation yield will be appealing to a significant number of investors, adding increased rivalry for stocks, particularly stocks with elevated valuations. The daily candles in Chart 1 show that the 10-year real yield has charted a higher…

The Peoples Bank of China has stepped up efforts to defend the renminbi. The Chinese currency has been declining off the back of poor economic data and woes in its property sector. This includes a weakening in exports and fragile consumer confidence.

Today’s CPI data from Japan came in mixed, but showed that inflation remains elevated and the pair slides after its 2023 highs, hovering around last year’s intervention levels

The Federal Open Market Committee minutes for the July meeting were released yesterday and indicate that officials are still concerned about inflation. The minutes read that “most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.”

The Aussie falls to new lows for the year today, weighed by the increase in Australian unemployment, which can help the central bank stay on the sidelines again

UK headline CPI came in at 6.8% y/y, which was lower than the previous print of 7.9% y/y. However, core CPI is 6.9% y/y, the same as the prior month. Inflation is down from current cycle highs but is still far above the Bank of England’s (BoE) target of 2%.

The UK’s average earnings index 3m/y (including bonuses) printed at 8.2%. This is higher than the previous 7.2% and higher than the forecast of 7.3%. In fact, regular pay grew by 7.8%, which is the highest rate since records began in 2001. This suggests another rate hike by the BoE in September is a distinct possibility.

USDJPY has hit a new high for 2023, trading near 145.15. Market participants are now looking for potential Japanese government intervention to support the yen. The dollar has been bolstered by higher US yields and concerns over the Chinese property market.

FXCM’s USDOLLAR has risen over the last four weeks, since reaching an intermediate low on 14 July of 12,626. This recent appreciation has breached the 12,934 level, which was the last lower peak. I.e., the latest higher peak (HP) has effectively ended USDOLLAR’s downtrend. An uptrend is yet to start; however, the dollar has started the week on a solid footing. Moreover, the weekly RSI has popped above 50 (blue…