USD/JPY Soars to 2023 Highs on Fed/BOJ Divergence, DXY Strengthens

Aussie, Kiwi, Asia-EMFX Tumble, Powell Remarks Lift US Bond Yields

Summary:

The US Dollar soared to fresh 2023 highs against the Japanese Yen on the widening divergence between the Fed and BOJ on interest rates. Overnight, the USD/JPY pair traded to 143.22, overnight and 7-month high before easing to settle at 143.12 (142.15 yesterday).

Fed President Jerome Powell said he does not see rate cuts anytime soon. The benchmark 10-year yield climbed 7 basis points to 3.79%. The 2-year bond rate climbed to 4.79% (4.68%).

In contrast, Japan’s 10-year JGB yield dipped to 0.36% (0.38% yesterday). Other global bond yields were higher. Germany’s 10-year Bund yield was up 9 basis points to 2.49%.

Last week the Bank of Japan kept its Policy Rate at -0.1%. BOJ Governor Kazuo Ueda reiterated that the Japanese central bank would keep its ultra-loose monetary policy.

The Bank of England surprised markets when it raised its Official Bank Rate to 5% from 4.50%. Markets were expecting the BOE to deliver a 25-basis point increase.

After initially climbing to 1.2832, Sterling (GBP/USD) slumped to 1.2745 at the New York close. Some analysts forecast a UK recession after an inversion of the UK 2 and 10-year gilt rates.

The UK 10-year treasury yield rose to 4.36% (4.33%). The two-year UK Gilt yield climbed to 5.04% from 5.02%.

The Euro (EUR/USD) dipped to 1.0955 from 1.0975 after trading to 1.1013 overnight high. Against the Swiss Franc, the Dollar rose to 0.8953 (0.8910) after the Swiss National Bank hiked interest rates by 25 basis points to 1.75% as expected.

The Australian Dollar slid to 0.6757 in late New York, succumbing to broad-based US Dollar strength. Overnight, the Aussie Battler saw a high at 0.6806. The overnight low traded was at 0.6745.

The Dollar advanced against the Asian and EMFX.  USD/CNH rallied to 7.1950 (7.1800 yesterday) while USD/THB (Dollar-Thai Baht) ratcheted 1.05% higher to 35.15 (34.85). Against the Singapore Dollar, the Greenback edged higher to 1.3450 from 1.3435 yesterday.

Global stocks were mixed. The DOW eased to close at 33,955 (34,055) while the S&P 500 was last at 4,385 against 4,395 yesterday. Japan’s Nikkei rallied 0.3% to 33,510 (33,250).

Economic data released yesterday saw the Eurozone Consumer Confidence edge up to -16 from a previous -17. US Existing Home Sales climbed to 4.30 million from 4.29 million.

• USD/JPY – In volatile trade, the Dollar rocketed higher, hitting a 7-month high at 143.22 before easing to 143.12 at the New York close. The divergence in policy between the Bank of Japan and Federal Reserve was highlighted in the respective 10-year bond yields.
• GBP/USD – The British Pound soared against the US Dollar to 1.2832 overnight high following the Bank of England’s decision to hike its Official Bank rate 50 basis points. Markets expected a 25-basis point increase. Sterling settled at 1.2745 in late New York (1.2765 yesterday).
• EUR/USD – The shared currency dipped against the Greenback to close at 1.0955, against yesterday’s 1.0975. Overnight, the Euro soared to a 1.1013 peak before tumbling to its New York finish. The overnight low traded was at 1.0948.
• AUD/USD – The Australian Dollar lost ground against the overall stronger Greenback to 0.6757 (0.6792 yesterday). The Aussie Battler traded to an overnight high at 0.6806 before easing. The overnight low traded was at 0.6745.

On the Lookout:

Today’s economic calendar picks up as we come to the finish of a busy and volatile week of trading. Global Manufacturing and Services PMIs are released today.

Australia kicked off today’s data releases with its June Judo Bank Flash Manufacturing PMI which rose to 48.6 from a previous 48.4, beating estimates at 48.1.

Australia’s Judo Bank June Flash Services climbed to 50.7 against forecasts at 50.1.

The UK released its GFK June Consumer Confidence, up at -24 from -27 previous, and beating estimates at -26.

Japan follows with its May Headline Inflation Rate (m/m f/c 0.5% from 0.6%; y/y f/c 4.1% from 3.5% - ACY Finlogix), Japan’s May Core Inflation Rate (y/y f/c 3.1% from 3.4% - ACY Finlogix).

The UK follows with its May Retail Sales report (m/m f/c -0.2% from 0.5%; y/y f/c -2.6% from -3% - ACY Finlogix), UK May Retail Sales (excluding fuel – m/m f/c -0.3% from 0.8%; y/y f/c -2.1% from -2.6% - ACY Finlogix).

France releases its June Flash Manufacturing PMI (f/c 45.4 from 45.7 – ACY Finlogix), French June Flash Services PMI (f/c 52 from 52.5: German June Flash Manufacturing PMI (f/c 44.8 from 44.8 – ACY Finlogix), German June Flash Services PMI (f/c 56.2 from 57.2 – ACY Finlogix).

The Eurozone follows with its June Flash Manufacturing PMI (f/c 44.8 from 44.8 – ACY Finlogix), Eurozone June Flash Services PMI (f/c 54.5 from 55.1 – ACY Finlogix).

The UK releases its June S&P Flash Manufacturing PMI (f/c 46.8 from 47.1 – ACY Finlogix), UK June S&P Flash Services PMI (f/c 54.8 froom 55.2 – ACY Finlogix).

Canada starts off North America with its May Wholesale Sales report (f/c 0.5% from -1.4% - ACY Finlogix) and finally the US releases its S&P June Global Manufacturing PMI (f/c 48.5 from 48.4 – ACY Finlogix) and US S&P June Global Services PMI (f/c 54 from 54.9).

Trading Perspective:

While global bond yields advanced, US rates maintained their advantage which will keep the Dollar bid.

Global Flash Manufacturing and Services PMIs released today will also be scrutinized by markets.

The Greenback has had a good week, finishing higher against most rivals.

Expect more volatile trade today with traders looking to adjust their positions as we come to the end of the week.

This should keep the Dollar’s topside somewhat limited.

Against the Japanese Yen, the US currency advanced furthest.

Markets will be looking for rhetoric from Japanese officials (Japan Inc).

Sterling eased despite a higher-than-expected rate increase from the Bank of England.

Expect more choppy trade in this currency pair as we head into the weekend.

• USD/JPY – Traders will be on the lookout for comments from various Japanese officials. Which will not move the USD/JPY much. However, any suggestion of intervention in the currency market could see an initial drop in the Greenback. The Dollar closed at 143.12. Immediate resistance lies at 143.25 (overnight high 143.22), 143.55 and 143.75. Immediate support can be found at 142.85, 142.55 and 142.25. Look for more choppy trade in this currency pair, likely between 142.25-143.25. Trade the range with no strong views intraday.

(Source: Finlogix.com)

• GBP/USD – Sterling slid to finish at 1.2743 after hitting a high at 1.2832 overnight. Look for immediate resistance at 1.2785 and 1.2805 to cap. Immediate support can be found at 1.2720 and 1.2690. Likely range today: 1.2720-1.2820. Be nimble and trade the range.
• AUD/USD – The Aussie Dollar slumped against the Greenback to 0.6757 after trading to 0.6745 lows overnight. Look for immediate support at 0.6740 followed by 0.6710. Immediate resistance can be found at 0.6780 followed by 0.6810. Look for another choppy trading session in this currency pair, likely between 0.6720 and 0.6820. Prefer to sell rallies.
• EUR/USD – The Euro eased 0.29% lower to 1.0955 against yesterday’s 1.0975. Overnight, the shared currency traded to 1.1013 highs before easing. Look for immediate resistance at 1.0985 followed by 1.1005 to cap any rallies. Immediate support can be found at 1.0940 followed by 1.0920. Expect another choppy trading day in the Euro, likely between 1.0930-1.1030. Just trade the range shag on this puppy today.

Happy Friday and trading all. And a top weekend too.

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