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The Dollar Ends a Volatile Week on a Strong Note

الدولار يختتم أسبوعاً متقلباً بأداء قوي بفضل رسوم ترمب الجمركية

The Dollar Ends a Volatile Week on a Strong Note, Supported by Trump’s Tariff Plans:
The U.S. dollar experienced a highly volatile week but ended
with strong performance amid renewed global trade tensions.
This surge came after President Donald Trump announced new plans
to impose tariffs on countries restricting U.S. exports, reigniting market uncertainty.

In this report, we will examine the key factors that drove the dollar’s rise,
how global currencies and emerging markets have been affected by trade war developments,
and investor trends in response to these updates.

Contents

Dollar Performance

Dollar vs. Major Currencies

A New Reality in the Trade War

Increased Demand for the Dollar

Conclusion

Dollar Performance

The U.S. dollar ended a volatile week with strong performance,
benefiting from renewed uncertainty over President Donald Trump’s intentions to impose new tariffs.
The rise followed Trump’s remarks,
in which he indicated his plans to announce similar tariffs
on countries that impose restrictions on U.S. exports without specifying which countries would be targeted.

The Bloomberg Dollar Spot Index rose by 0.4%,
while global currencies weakened against the U.S. dollar.
Although the dollar faced pressure after Canada and Mexico announced
a one-month delay in imposing tariffs,
it managed to recover some of its earlier losses.

According to Brendan McKenna, a strategist at Wells Fargo in New York:
“We are in a period where tariffs-related statements and headlines will directly impact the markets.”

Dollar vs. Major Currencies

Most major currencies from the Group of Ten (G10) weakened against the dollar.
The Japanese yen lost its gains during the session after Trump stated
that imposing tariffs on Japan was still an option.
Meanwhile, the euro and Swiss franc led the decline among global currencies.

Eastern European currencies and the Brazilian real were among the biggest losers in emerging markets.
At the same time, the stock index of emerging markets is
primarily focused on Asia.
It trimmed its gains following news of potential tariffs

but remained on track to post its fourth consecutive weekly increase.

Jordan Rochester, head of fixed income and currency strategy at Mizuho Bank, commented:
“The term ‘similarly’ carries a specific implication, but we know that Trump uses terms flexibly.
Anyone who thought tariffs wouldn’t be imposed until
Canada and Mexico’s grace period ended must now take short-term hedging measures.”

A New Reality in the Trade War

Traders faced a turbulent start to the week after the Trump
administration announced a 25% tariff on goods from Canada and Mexico,
only to retract the decision after both countries announced a one-month delay.
Meanwhile, the 10% tariffs on Chinese goods remain unchanged.

Increased Demand for the Dollar

Despite the volatility, demand for the U.S. dollar remains strong.
The Bloomberg Dollar Spot Index is trading 0.5% lower for the week but remains close to its highest since 2022.

The latest data from the Commodity Futures Trading Commission (CFTC)
speculators hold long positions worth up to $33.7 billion, nearing the dollar’s peak in 2019.

Win Thin, Head of Global Market Strategy at Brown Brothers Harriman & Co., stated:
“Trump is delivering on all his promises, which will continue to support the strength of the U.S. dollar moving forward.”

Conclusion

The dollar ended a volatile week with strong performance,
driven by Donald Trump’s comments on imposing new tariffs.
While markets remain uncertain,
investors continue to turn to the greenback as a haven,
reinforcing the dollar’s strength despite market fluctuations.

The Dollar Ends a Volatile Week on a Strong Note

Morgan Stanley Cuts Its UK GDP Growth Forecast for 2025

Morgan Stanley recorta previsión del PIB británico 2025.

Morgan Stanley Cuts Its UK GDP Growth Forecast for 2025:
Morgan Stanley has lowered its forecast for the United Kingdom’s GDP growth in 2025 to 0.9%,
down from its previous estimate of 1.3%.
This move comes amid an ongoing economic slowdown and a weakening labor market,
reflecting an increasingly negative outlook for the UK’s economic performance.

Content
Morgan Stanley
Japanese Yen
China

Morgan Stanley Cuts Its UK GDP Growth Forecast for 2025

Morgan Stanley has lowered its forecast for the United Kingdom’s GDP growth in 2025 to 0.9%,
down from its previous estimate of 1.3%.
This move comes amid an ongoing economic slowdown and a weakening labor market,
reflecting an increasingly negative outlook for the UK’s economic performance.

The bank highlighted that persistently high prices and growing fears of stagflation further complicate the economic landscape.
It also predicted that the Bank of England might slow its rate cuts, limiting economic momentum.

These forecasts raise concerns about their potential impact on foreign investment,
adding pressure to the UK stock and bond markets.
The challenges are further compounded by ongoing political uncertainty from Brexit and conflicting economic policies.

Under these circumstances, the UK faces significant challenges in maintaining positive growth rates.
Experts emphasize that adopting flexible economic policies focusing
on attracting investments and providing a stable business environment is essential to stimulating the economy and restoring confidence.

Japanese Yen Rises Amid Political Tensions and Bank of Japan Decisions

The Japanese yen recorded a positive performance on Monday,
becoming the only currency among the G10 to strengthen against the U.S. dollar.
This rise was driven by investors seeking safe-haven assets amidst escalating political tensions between the United States and Colombia.

The dollar declined by 0.54% against the yen,
reaching 155.13 yen after touching 156.24 yen earlier in the session.
This movement followed U.S. President Donald Trump’s executive order imposing
tariffs and sanctions on Colombia for refusing to accept two military planes carrying deported migrants from the United States.
However, Trump later reversed the decision after reaching an agreement with Colombia, calming global markets.

Additionally, the yen benefited from the Bank of Japan’s decision to raise its key interest rates last week.
Analysts expect the yen’s positive performance to continue
as the central bank moves toward tightening and normalizing its monetary policy, aligning with other global counterparts.

This approach is expected to narrow the yield gap between
Japanese government bonds and their counterparts in significant economies enhance the yen’s appeal as a safe-haven asset for investors.

Manufacturing and Non-Manufacturing Activity Slows in China in January

Data released by the China Federation of Logistics on Monday morning showed
a significant slowdown in the manufacturing and non-manufacturing sectors in January.

The Manufacturing Purchasing Managers’ Index (PMI) registered a reading of 49.1,
indicating contraction.
It fell below market expectations of 50.1 and the previous reading of 50.1 in December.

In the non-manufacturing sector, the PMI showed clear deceleration,
recording 50.2 in January, far below the forecasted 52.1 and down from December’s reading of 52.2.

These figures highlight the pressures facing China’s economic sectors,
as a reading below 50 indicates contraction, while a reading above 50 signals growth.

Morgan Stanley Cuts Its UK GDP Growth Forecast for 2025

Japanese Assets Most Vulnerable to U.S. Election Outcomes

Los activos japoneses son vulnerables a las elecciones de EE. UU.

Japanese Assets Most Vulnerable to U.S. Election Outcomes: Japanese markets are watching the upcoming U.S. election results
and their potential impact on Japanese assets.
While a win for Kamala Harris might support the Japanese yen,
a victory for Donald Trump could have varied effects on stocks and currency markets in Tokyo.
With multiple scenarios drawn for the path of Japanese assets,
investors are cautiously awaiting the election outcome and its impact on the Japanese economy.

Content

Impact of the U.S. Elections

Market Focus on Japan

Dollar-Yen Volatility

Short-Term Effects

Tariff Increases

Impact of the U.S. Elections on the Yen and Japanese Stock Markets

A win for Kamala Harris could support the yen,
while a Trump victory might energize the Tokyo stock market
but pose a greater risk of a sharp decline for the yen.
Analysts warn that markets may face significant volatility if the U.S. election results are disputed.

Markets Focusing on Japan During the U.S. Vote Coun

Japanese markets are gaining special attention due to their size and liquidity,
as traders monitor the U.S. election results and their impact on the dollar and yen during Asian trading sessions.

Harris’s Policies and Expected Impact on the Yen

If Harris wins, she is expected to maintain an economic policy aimed at a soft landing for the U.S. economy.
This could potentially allow the Federal Reserve to lower interest rates if inflation doesn’t rise significantly,
strengthening the yen due to a narrower yield gap between Japan and the U.S.

Trump’s Return and Its Impact on the U.S. Economy and the Yen

On the other hand, Trump’s victory could boost the U.S. economy in the short term,
Tax cuts and regulatory easing will likely drive the dollar up and negatively impact the yen.

Potential Impact on the Yen and Dollar Prices

A stronger dollar could benefit Japanese exporters,
yet Trump’s plans for imposing tariffs may pose a risk to Japanese stocks.
If Trump wins, the focus will shift to the congressional elections
and the impact of a Republican majority on U.S. policies.

Expected Yen Decline if Trump Wins

Analysts at Crédit Agricole and Mizuho predict the yen
could fall to 160 per dollar if Trump wins, the lowest level in 38 years.

Close Race in Poll Results

Recent polls show that Harris and Trump are close in the election race,
increasing the likelihood of market volatility.
With a decline in the U.S. dollar and a rise in Treasury yields,
the election outcome could influence the prices of local assets in Japan.

Dollar-Yen Volatility

Implied volatility in the dollar-yen exchange rate has risen to its highest level since August,
reflecting expectations of increased fluctuations due to the election.

Short-Term Impact of Trump’s Victory on Japanese Stocks

Any boost to Japanese stocks from a Trump win may be short-lived if he imposes new tariffs,
especially in China, which could negatively impact the Japanese economy.

Tariff Increases and Their Effect on Japanese Exports

Masahiko Loo from State Street believes that if Trump imposes tariffs of up to 20% on imports,
Japan’s exports of cars and machinery could suffer,
potentially impacting the Japanese economy and slowing global growth.

Japanese Assets Most Vulnerable to U.S. Election Outcomes

BOJ Governor: Continuing Monetary Easing and Market Monitoring

BOJ Governor: Continuing Monetary Easing and Market Monitoring: In a monetary policy press conference held on Thursday,
Bank of Japan Governor Kazuo Ueda stated that the central bank
will continue with a flexible monetary easing policy and adjust interest rates in line with economic expectations and price targets.
Ueda discussed several important points, including market monitoring, the impact of yen movements,
and the influence of global economies on Japan’s economy.

Content

Details

In Thursday’s monetary policy press conference, Bank of Japan Governor Kazuo Ueda
emphasized that the central bank plans to continue adjusting the level of monetary

easing and interest rates to economic expectations and price objectives.
Below are the key points Ueda addressed during the conference:

Market Monitoring: Ueda stated that the Bank of Japan will continue monitoring financial and foreign exchange
markets and their effects on the economy and prices.

Impact of Yen Movements: He highlighted that yen movements have increased prices,

with companies showing greater interest in raising wages and prices.

Economic Recovery: Ueda noted that the Japanese economy
is recovering moderately despite some weaknesses in specific sectors.

Continued Easing: Ueda mentioned that the bank would adjust its policies
if necessary to achieve economic growth and inflation goals.

Influence of External Economies: He clarified that the bank will consider the impact of global economies,
particularly the U.S. economy, on Japanese economic activities.

Future Rate Hikes: Ueda stated that the Bank of Japan
may consider raising interest rates if confidence in achieving forecasts is sufficient,
noting that this decision will not rely on these factors alone.

Consumer Price Inflation: The Bank of Japan expects inflation rates
to align with targets in the second half of the period.

U.S. Economy: Ueda mentioned that reduced risks in the U.S. economy
allow for decisions based on traditional economic factors.

BOJ Governor: Continuing Monetary Easing and Market Monitoring

Asian Markets Rally Following U.S. Small-Cap Stock Surge

Asian Markets Rally Following U.S. Small-Cap Stock Surge: Asian markets saw a notable rise after Wall Street closed with gains,
as investors shifted their focus from major tech companies to stocks more sensitive to economic data,
including small-cap companies.

These movements highlight the dynamic nature of global markets and their current trends.

Content
Performance of Asian Markets
Anticipation of Chinese Economic Data

Movements of the Japanese Yen
Developments in the Semiconductor Market
Shifts in U.S. Investor Trends

Continued Momentum in U.S. Markets

Updates on Commodity and Cryptocurrency Markets

Performance of Asian Markets

Hong Kong, China, and Australian stocks recorded gains, while Japanese stocks experienced volatility.
At the same time, U.S. stock futures fell slightly after the S&P 500 rose by 0.5% on Wednesday.
In contrast, the Russell 2000 small-cap index reached its highest level in nearly three years,

while the Nasdaq 100 only saw a modest increase of 0.1%.

Anticipation of Chinese Economic Data

Investors are eagerly awaiting Chinese economic data,
with figures set to be released on Friday expected to show
4.5% growth in the third quarter compared to last year,
according to a Bloomberg survey.
If this forecast holds, it would mark the slowest growth rate in six quarters.

Chinese President Xi Jinping has called on officials to make every

effort in the year’s final quarter to achieve the annual growth target of approximately 5%.
However, a series of press conferences this month,
which failed to provide details on new incentives,
has raised concerns that more than current efforts may be needed to drive growth.
The following key event will be a press conference by the Housing Minister on Thursday.

Movements of the Japanese Yen

In Australia, bond yields rose after the unemployment rate dropped to 4.1% in September,
contrary to Bloomberg’s economist survey, which had expected the rate to remain stable.
The U.S. 10-year Treasury yield also increased to 4%,

while the dollar index remained close to its highest since early August.

The Japanese yen stabilized on Thursday morning after declining against the dollar in the previous session.
Meanwhile, Japan’s exports unexpectedly dropped in September, raising some economic concerns.

Developments in the Semiconductor Market

Taiwan Semiconductor Manufacturing Company (TSMC) is scheduled to release its earnings on Thursday,
and the company’s results will be closely watched for any signs of slowing chip demand.
This is especially true after ASML reported disappointing
order figures and lowered its revenue forecasts for 2025 earlier in the week.

Shifts in U.S. Investor Trends

The gains in U.S. small-cap stocks on Wednesday indicate a shift by investors away from large tech companies,
which have significantly benefited from the AI boom, towards stocks that thrive under stable economic conditions.

David Russell of TradeStation stated,
“There may be a tendency among investors to move away from large tech companies,
which may not have sufficient catalysts to sustain their rise.”

He added, “With elections approaching and economic balance returning,
the long-anticipated shift from large companies to other firms may be closer than ever.”

Continued Momentum in U.S. Market

Traders continue to monitor U.S. corporate earnings.
Morgan Stanley’s shares jumped 6.5% after its trading
and banking divisions posted revenues that exceeded expectations,
leading to a 32% increase in third-quarter profits.
United Airlines Holdings also saw its shares rise by 12% after reporting earnings that surpassed expectations.

The S&P 500 has already recorded 46 closing records this year,
and according to Goldman Sachs’ trading desk,
this momentum is expected to continue in the final months of 2024.

Scott Rubner, General Manager of Global Markets at Goldman Sachs,
expects the index to reach above 6,000 points by the end of the year.
Based on historical data dating back to 1928,
the average returns for the S&P 500 from October 15 to December 31 stood at 5.17%,
rising to nearly 7% in election years, indicating a potential level of 6,270 points by the end of the year.

In a client note on Tuesday, Rubner added,
“The selling wave in the stock market has paused,
and signs of a year-end rally are emerging as clients shift
from hedging against negative scenarios to focusing on positive outcomes,
with institutional investors now being forced into the market.”
He noted that professional investors are increasingly concerned about underperforming relative to benchmarks.

Updates on Commodity and Cryptocurrency Markets

West Texas Intermediate crude rose after a four-day decline ending Wednesday in the commodity markets.
Gold remained stable after two consecutive sessions of gains.
Meanwhile, Bitcoin stabilized on Thursday morning after rising 1.7% on Wednesday,
reaching its highest level since July.

Asian Markets Rally Following U.S. Small-Cap Stock Surge

Oil Prices Steady Amid Middle East Tensions and Libyan Supply Expectations

Oil Prices Steady Amid Middle East Tensions and Libyan Supply Expectations: Oil prices stabilized at the start of trading on the first day of the last quarter of the year,
as expectations of Libyan supply returning diminished the impact of geopolitical risks in the Middle East.

Content
Oil Prices
Jerome Powell
Bank of Japan

Oil Prices Steady Amid Middle East Tensions and Libyan Supply Expectations

Oil prices stabilized at the start of trading on the first day of the last quarter of the year,
as expectations of Libyan supply returning diminished the impact of geopolitical risks in the Middle East.
Brent crude for December traded near $72 per barrel, following a slight rise on Monday,

with West Texas Intermediate exceeding $68.
The Israeli army announced targeted strikes against Hezbollah targets in southern Lebanon.
Meanwhile, Libya is preparing to resume production after the two rival governments reached a compromise,

according to people familiar with the matter.

Global Brent crude has dropped by nearly 17% in the last quarter and is now down for the year.
Expectations that “OPEC+” will implement production recovery plans and a slowdown in
Even after last week’s massive stimulus plan, China has weighed on prices.
“OPEC+” is set to hold an online monitoring meeting tomorrow,
Wednesday, as the coalition prepares to increase production.
Russian Deputy Prime Minister Alexander Novak said last week
that the group would begin restoring supplies in December and that no new proposals were being discussed.

Jerome Powell: Fed to Cut Rates Over Time as Inflation Steadily Declines

Federal Reserve Chairman Jerome Powell stated that the central bank would lower interest rates “over time,”
reiterating that the overall economy remains strong.
Powell also reaffirmed his confidence that inflation will continue moving toward the Fed’s 2% target,
noting that economic conditions are setting the stage for further easing inflationary pressures.

Speaking at the National Association for Business Economics annual meeting in Nashville, Powell said:
“If the economy evolves as expected, policy will gradually shift towards a more neutral stance over time.”
He added: “But we are not on a predetermined path,”
indicating that policymakers would continue making decisions on a meeting-by-meeting basis based on new economic data.
A neutral policy is one that neither stimulates nor restricts the economy.
The current interest rate, which the Federal Reserve lowered to 4.75%-5% earlier this month,
is still restraining economic activity.

Bank of Japan Signals Pause in Rate Hikes Following Major Fed Cut

A summary of the Bank of Japan’s September meeting showed that
policymakers discussed the need to slow down rate hikes as volatile markets cloud the outlook,
reducing the likelihood of near-term interest rate increases.
The summary also highlighted how the U.S. Federal Reserve’s decision to significantly cut borrowing costs,
which came a day before the BOJ’s meeting on September 19-20,
raised concerns about the U.S. economic outlook.

One member said, “Uncertainty about the U.S. economy and the pace of Federal Reserve rate cuts has increased.
Attention must be paid to the possibility that these factors could negatively affect Japan’s yen’s exchange rate and corporate profits.”

The summary also revealed that even one advocate of future rate hikes called for patience in decision-making,
marking a shift from the previous July meeting when many
the nine-member board voted to raise rates to avoid the risk of extremely high inflation.

Oil Prices Steady Amid Middle East Tensions and Libyan Supply Expectations

Producer Price Inflation Continues to Accelerate in Japan

Producer Price Inflation Continues to Accelerate in Japan for the Sixth Consecutive Month

The Bank of Japan reported in its Tuesday release that the price index rose by 3% year-on-year in July.

Topic

Energy Costs

Decline effect

The Yen’s Decline

Energy Costs

This increase was driven by higher energy costs following the expiration of government subsidies for public utilities.
However, it fell short of economists’ expectations, which had forecast a 3.1% rise.
On a monthly basis, prices rose by 0.3%, aligning with expert predictions.

Decline effect

The report also highlighted a 10.8% increase in yen-denominated import costs,
reflecting the impact of the yen’s depreciation on inflation.
Additionally, electricity, gas, and water costs increased by 6.7% compared to the same period last year.

The Yen’s Decline

The yen’s decline this year has exacerbated inflationary pressures by increasing the costs of importing raw materials, food, and fuel. Following the Bank of Japan’s decision to raise the benchmark interest rate on July 31, Governor Kazuo Ueda stated that the authorities would continue to raise rates if economic growth and price expectations were met. His firm stance led to a rebound in the yen and a drop in stocks, prompting his deputy, Shinichi Uchida, to emphasize last week that the bank would be cautious about raising rates if financial markets were unstable.

Producer Price Inflation Continues to Accelerate in Japan

The Japanese Yen Above 150 Yen Barrier for the First Time in 5 Months

The Japanese Yen Above 150 Yen Barrier for the First Time in 5 Months: The Japanese yen rose widely in the Asian market on Thursday
against a basket of major and minor currencies, extending its gains for the third consecutive day against the US dollar.

Contents

The Japanese Yen

US Stocks

Bank of England

The Awakening Continues: The Japanese Yen Above 150 Yen Barrier for the First Time in 5 Months

The Japanese yen rose widely in the Asian market on Thursday against a basket of major and minor currencies,
extending its gains for the third consecutive day against the US dollar.
It traded above the psychological barrier of 150 yen per dollar for the first time in five months,
thanks to more aggressive than expected results from the Bank of Japan’s monetary policy meeting.

The Bank of Japan raised Japanese interest rates for the second time this year to the highest range since 2008,
announced a quantitative tightening plan, and halved government bond purchases over two years.
Governor Kazuo Ueda stated that the benchmark interest rate has no specific ceiling during the current normalization cycle.

US Stocks Close the Last Sessions of July with a Rise, and the Dow Jones Achieves Monthly Gains

US stock indices rose during Wednesday’s trading
amid the assessment of corporate earnings results and the Federal Reserve statement.

The Federal Reserve announced on Wednesday that it will keep
the interest rate unchanged for the fifth time this year and the eighth time in a row,
at a range between 5.25% and 5.50%, a move largely in line with expectations.

This marks the ninth time the Fed has held the interest rate steady since March 2022,
when the monetary tightening cycle began.

The Dow Jones Industrial Average rose by 0.2% (equivalent to 99 points) to 40,842 points,
achieving monthly gains of 4.4%.
The highest level was 41,198 points, and the lowest was 40,655 points.

Bank of England Poised to Lower Interest Rates

The Bank of England is set to start lowering the base interest rate by 25 basis points to 5%, down from its 16-year high of 5.25%.
However, the decision is highly challenging,
Many investors believe the central bank might opt to keep rates steady due to inflation concerns.
Headline inflation remained constant at 2% in June, while the unemployment rate remained at its highest level since 2021.
Meanwhile, wage growth, despite slowing, remains high.
The Bank of England will unveil new growth and inflation forecasts.

The Japanese Yen Above 150 Yen Barrier for the First Time in 5 Months

The Yen’s Crazy Surge Threatened by Imminent Collapse

The Yen’s Crazy Surge Threatened by Imminent Collapse: The Japanese yen, which has experienced a “crazy” surge, faces a significant threat of collapse in the near future.
The Bank of Japan (BOJ) and the Federal Reserve meetings will be crucial in determining the yen’s future trajectory.
The yen’s recent gains could vanish just as quickly if the BOJ does not raise interest rates.
However, unstable economic data and weak consumer spending may prevent the BOJ from making this move.

Content

Determining the Outlook for the Japanese Currency

Investor Bets

Probability of Raising Interest Rates

Support for the BOJ’s Stance

U.S. Interest Rate Risks

Determining the Outlook for the Japanese Currency

The Japanese yen, which has experienced a “crazy” surge, faces a significant threat of collapse in the near future.
The Bank of Japan (BOJ) and the Federal Reserve meetings will be crucial in determining the yen’s future trajectory.
The yen’s recent gains could vanish just as quickly if the BOJ does not raise interest rates.
However, unstable economic data and weak consumer spending may prevent the BOJ from making this move.

Investor Bets

Investors have flocked to buy the yen recently,
betting that the interest rate differential between the United States and Japan will shift in favor of the latter.
They will face their moment of truth on Wednesday.
The yen is holding onto a nearly 5% gain against the dollar before it began rising on July 11,
a move bolstered by talk of BOJ intervention in the market. Some investors warn that the surge is fragile,
as evidenced by the yen’s quick retreat from gains after stronger-than-expected U.S. economic growth figures.

Probability of Raising Interest Rates

Swap markets indicate a 43% chance that the BOJ will raise interest rates by 15 basis points
by the end of its monetary policy meeting on July 31, signaling considerable caution.
Only 30% of BOJ watchers polled by Bloomberg expect a rate hike,
even though over 90% see it as a risk.
This makes yen bulls vulnerable, especially if the BOJ also disappoints expectations
with a significant reduction in bond purchases or if the Federal Reserve
does anything later that day to dampen hopes for U.S. rate cuts in the coming months.

The Crazy Rise

Nick Twidale of ATFX Global Markets, who has been trading the Japanese currency for a quarter of a century, said:
“This is a crazy rise for the yen.
The BOJ could spoil the party and not play its role in tightening policy.”
Twidale added that if the BOJ does not meet market expectations, carry trades,
which profit from interest rate differentials and have kept the yen weak,
“could come back strongly.” Others, from BlackRock to former central bank officials,
expect the BOJ to keep rates steady for longer.

Economic Data

Unstable economic data lends credibility to this view:
while a key index tracking the strength of Japan’s service sector rebounded in July,
a measure of factory activity contracted.
People familiar with the matter say weak consumer spending complicates the BOJ’s decision this week.

Market Expectations

Amir Anvarzadeh, a strategist at Asymmetric Advisors who has tracked Japanese markets for over thirty years, said,
“If the BOJ does nothing, the dollar could rise against the yen again.”
Nonetheless, the yen rose 0.2% to 153.62 against the dollar at 9:07 a.m.
in Tokyo, following a third month of accelerating inflation in the Japanese capital.

Demand for the Yen

After last week’s significant move, Nathan Sowell,
managing director of foreign exchange trading at Citigroup in Singapore,
saw additional demand for bullish yen options. He said:
“It’s still too early to tell if this signals a long-term shift in investor sentiment,
so it’s more likely to be a tactical shift in positioning or short-term hedging activity for now.”

State of Uncertainty

Other traders note that some hedge funds have stayed out of the market amid uncertainty
about how much the currency can gain before the BOJ’s policy meeting this week.
If the BOJ does not fully meet expectations,
The yen could weaken to 158 against the dollar, according to Rodrigo Catril of National Australia Bank.

Support for the BOJ’s Stance

However, even if the BOJ tightens policy on Wednesday,
there is still reason to support its stance in carry trades.
In these, investors use Japan’s ultra-low interest rates to borrow in yen and invest in higher-yielding currencies.
The yen’s implied yields would still be about 90 basis points
lower after a rate hike than those of the Swiss franc,
an alternative funding currency for carrying trades.

U.S. Interest Rate Risks

There are also many risks associated with U.S. interest rates.
If the chances of the Federal Reserve cutting rates diminish, the Japanese currency could face pressure again.
Charo Chanana, head of currency strategy at Saxo Capital Markets, said:
“The yen could test 160 if the Fed does not signal
rate cuts in September and U.S. data gains strength again.”

The Yen’s Crazy Surge Threatened by Imminent Collapse

Rise of the Japanese Yen

Rise of the Japanese Yen: The Japanese Currency, the yen, surged against most major and minor currencies last week.
This was due to the decline in U.S. bond yields, which supported the yen gains.

The yen moved away from its 38-year low thanks to the intervention
of the Japanese central bank in the foreign exchange market to halt the excessive weakening of the local currency.

Contents

Decline in Gold Prices

Rise of the Japanese Yen

Expectations of No Significant Increase in British Inflation

Decline in Gold Prices

Global gold prices fell during Monday’s trading as investors awaited comments from Federal Reserve officials and upcoming economic data.
Federal Reserve Chairman Jerome Powell and other officials are scheduled to speak this week.
The forthcoming data includes U.S. retail sales, June industrial production, and weekly jobless claims.
If retail sales are weak, it could reinforce the need to cut interest rates, which could help gold prices.
If gold surpasses $2,450, it may reach new record levels.
The U.S. Department of Labor’s Bureau of Statistics reported a 0.2% increase in the Producer Price Index
in June after remaining unchanged in May, exceeding the expected growth of 0.1% amid rising service costs.

Rise of the Japanese Yen

The Japanese yen surged against most major and minor currencies last week.
This was due to the decline in U.S. bond yields, which supported the yen gains.
The yen moved away from its 38-year low thanks to the intervention of the Japanese central bank
in the foreign exchange market to halt the excessive weakening of the local currency.
The yen topped the list of winning currencies last week, achieving its best weekly performance since late April.
New buying positions accelerated, along with the covering of short positions.
Instead of the Japanese central bank’s low liquidity and momentum strategy,
it has adopted a new approach based on solid liquidity and accelerating momentum.
The sharp drop in long-term U.S. Treasury yields supported the gains of the Japanese currency,
as more extraordinary U.S. inflation data increased the likelihood of at least two Federal Reserve rate cuts this year.

Expectations of No Significant Increase in British Inflation

According to Reuters, Swati Dhingra, a member of the Bank of England’s Monetary Policy Committee,
said on Monday that it is unlikely that inflation in the UK will rise significantly again due to weak demand.
She emphasized the need for the Bank of England to reduce borrowing costs.
Dhingra stated, “Now is the time to start normalizing interest rates so
that we can finally stop pressuring living standards in the way we have been trying to reduce inflation.”
She added that she does not see any kind of consumption boom,
and if we are to start moderating from the extremely high interest rates we are currently at,
it will take some time for this to happen
so that we can ease it and feed it into the real economy.
Finally, Swati Dhingra from the Bank of England emphasized that demand is too weak to allow inflation to rise sharply.

Rise of the Japanese Yen