- More Aggressive remarks by BOJ Governor Kazuo Ueda
- Bearish remarks from Fed Chair Powell
The yen rose in Asian trade on Monday against a basket of major rivals, extending gains for the second day against the US dollar, and hitting three-week highs, amid increasing pressures once more on yen carry trades following recent remarks by the central banks governors in Japan and the US.
Bank of Japan Governor Kazuo Ueda’s testimony ahead of the National Diet was more aggressive than expected, boosting the odds of a third rate hike this year.
Conversely, Fed Chair Jerome Powell’s remarks at Jackson Hall were more pessimistic than expected, underpinning speculation about big US rate cuts before the year end.
The Price
The USD/JPY fell 0.6% today to 143.44, the lowest since August 5, with a session-high at 144.35.
The yen closed up 1.3% on Friday against the dollar, the first profit in three days as the US-Japan interest rate gap is expected to shrink soon.
Yen rose 2.2% against the dollar last week, the first weekly profit in three weeks as yen carry trades faced renewed pressures.
Ueda’s Testimony
A special National Diet session was held on Friday to discuss the Bank of Japan’s surprise move to raise interest rates last month and normalize policies.
Kazuo Ueda said that a rate hike in July was in line with the central bank’s economic outlook, asserting the bank is ready to adjust its policies if the economy moved as expected.
He said that recent changes to the monetary policy were suitable, and he warned from any sudden moves in the forex impact, the impact of such moves on prices and wages.
Ueda said that extreme volatility in the exchange price impacts inflation outlook.
He believes that interest rates could reach neutral levels if data matches the outlook until 2026.
Japanese Rates
Following Ueda’s speech, traders put a 70% chance for a December rate hike by the Bank of Japan.
Powell
At Jackson Hall, Fed Chair Jerome Powell sent out clear signals about the approach of rate cuts, but refused to pin a specific date.
Powell said in his annual Jackson Hall speech that it’s time to modify policies, with the direction clear. He added that the timing of the next rate cut will depend on data and developing outlook.
He pointed to noticeable progress in containing inflation, and added that the Fed can now shift to the other half of its double mission, which is to maintain an economy with full employment.
US Rates
Following Powell’s speech, the odds of a 0.5% Fed rate cut in September rose from 25% to 38%, and the odds of a 0.25% cut fell to 62%.
The markets are expecting 100 basis points of interest rate cuts by the Fed this year.
Oil prices rose on Friday amid optimism about increasing crude demand, but the gains weren’t enough to recoup weekly losses.
Fed Chair Jerome Powell said in Jackson Hall that inflation has been mostly contained, paving the way for rate cuts.
Otherwise, the dollar index fell 0.8% as of 20:13 GMT to 100.6, with a session-high at 101.5, and a low at 100.6.
On trading, Brent October futures rallied 2.35% to $79.02, reducing the weekly loss to 0.85%.
US crude futures due in October closed up 2.5% to $74.83 a barrel, reducing their weekly losses to 0.95%.
At Jackson Hall, Fed Chair Jerome Powell sent out clear signals about the approach of rate cuts, but refused to pin a specific date.
Powell said in his annual Jackson Hall speech that it’s time to modify policies, with the direction clear. He added that the timing of the next rate cut will depend on data and developing outlook.
He pointed to noticeable progress in containing inflation, and added that the Fed can now shift to the other half of its double mission, which is to maintain an economy with full employment.
He asserted that the Fed’s aim was to stabilize the market while maintaining a strong labor sector, and avoid excessive rises in unemployment, which characterized previous cycles of inflation control.
He highlighted that inflation was a global phenomenon, resulting from a demand spike on commodities and the disruption of supply chains among other factors.
- US dollar weakness boosts gold prices
- Markets await strong data on US rate cuts
Gold prices rose in European trade on Friday, resuming gains after a two-day hiatus, and approaching record highs once more as the dollar weakened against a basket of major rivals.
The Fed’s July meeting minutes boosted the odds of a September Fed rate cut, with traders now waiting for Fed Chair Jerome Powell’s speech later today to gather more clues.
Prices
Gold prices rose 0.55% today to $2498 an ounce, with a session-low at $2484.
On Thursday, prices lost 1.1%, the second loss in a row, on profit-taking away from record highs at $2531.
Gold prices were pressured back then by the stronger dollar and US yields.
The Dollar
The dollar index fell 0.3% on Friday, resuming losses and moving away from eight-month lows at 100.92 against a basket of major rivals.
The Fed
According to the Federal Reserve’s July meeting minutes, the majority of members expect an interest rate cut in September if data continued on the current trajectory.
US Rates
According to the Fedwatch tool, the odds of a 0.5% Fed interest rate cut in September stood at 25%, and the odds of a 0.25% cut stood at 75%.
Now market focus is shifting to Federal Reserve Chair Jerome Powell’s speech at Jackson Hall later today, expected to provide important clues about the future of US inflation and interest rates.
SPDR
Gold holdings at the SPDR Gold Trust rose 1.15 tonnes yesterday to a total of 857.85 tonnes.
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