The GBP is the strongest and the JPY is the weakest as the North American session begins

The GBP is the strongest of the major currencies and the JPY is the weakest as the North American traders enter for the new trading day.

The Bank of Japan maintained its dovish stance by keeping its ultra-low interest rates and continuing its yield curve control program, standing as an outlier among major global central banks such as the Federal Reserve, the European Central Bank, the Bank of Canada, Reserve Bank of Australia, and the Bank of England, all of which raised rates, and/or signaled the chance for more hike(s). This comes despite rising inflation and warnings from the new Governor Kazuo Ueda about the need to alter this stance in the future.The Bank of Japan (BOJ) decided to keep its short-term interest rate target at -0.1% and its 10-year Japanese Government Bond (JGB) yield target around 0%, with a band up and down 0.5% each. This decision, part of the BOJ’s yield curve control (YCC) strategy, was made unanimously. In the statement, the BOJ observed that Japan’s economy is improving, and it expects the moderate recovery to continue. They noted that key economic indicators such as exports, output, capital expenditure, and consumption are exhibiting moderate increases. However, core consumer inflation is expected to decelerate towards the middle of the fiscal year. The BOJ noted that inflation expectations, which had previously heightened, are now moving sideways. The BOJ reiterated that there’s considerable uncertainty surrounding Japan’s economic outlook, primarily driven by global factors.

BOJ’s new Governor Kazuo Ueda made additional comments indicating that more time is needed to achieve the 2% inflation target. He anticipates inflation to slow down around the middle of fiscal year 2023. He mentioned the need for careful monitoring of foreign exchange and financial markets and that the BOJ has refrained from changing its policy as Japan’s inflation isn’t sustainable.

Furthermore, Ueda noted the recent weakening of the yen and suggested that it’s possible inflation might fall below the 2% target in the future. Lastly, he mentioned that updates on the progress of the review of past policies would start next month.

The USDJPY moves back higher (lower JPY) on the news and comments, nearly erasing the declines seen in yesterday’s trading.

The day after the European Central Bank (ECB) raised interest rates by 25 basis points, various ECB officials provided their perspectives on the future of monetary policy. Pierre Wunsch suggested that barring a significant drop in core inflation, we could see another rate hike in September. Mario Centeno underscored the urgent need for ECB intervention to control inflation. Along the same lines, Robert Holzmann pointed out that if the present economic conditions persist, more policy intervention may be necessary beyond July. Olli Rehn confirmed that future ECB decisions would remain data-dependent, thus reflecting a commitment to being guided by shifts in economic indicators. Additionally, Nagel stated that the central bank may need to continue increasing interest rates after the summer break if inflationary pressures persist.

The EURUSD is trading in a narrow range, but extending to new highs in early US trading.

In China, economic growth forecasts for 2023 have been downgraded by multiple major Western banks, including Bank of America, JPMorgan, UBS, and Standard Chartered. These revisions reflect the decreased confidence in China’s economic recovery. The People’s Bank of China has responded by cutting some key interest rates, but it appears that further stimulus may be needed to revive this critical regional growth driver. IN other geopolitical news, US Secretary of State Blinken is to meet with Chinese officials during a Beijing trip this weekend

U.S. stock futures saw a marginal increase as investors now shift their focus towards the release of economic data for clues about future economic conditions. In addition, comments from Fed officials will be forthcoming which the market can use to gauge the level of hawkishness (or not) after the Federal Reserve‘s decision to pause its rate-hiking cycle. Weaker employment from the initial jobless claims data yesterday took some of the sting out of the Fed’s dot plot increase of 50 more basis points of hikes in 2023 and led to sharp gains in stocks. The gains were led once again by the Nasdaq index which rose 1.15%. The Nasdaq is up nearly 4% on the week (for the 8th consecutive week gain).

Tech giant Microsoft achieved a record market capitalization of $2.59 trillion, driven by investor optimism surrounding its ventures in artificial intelligence (AI). Despite a legal hurdle in its attempt to acquire Activision Blizzard, Microsoft’s integration of AI upgrades into its Azure cloud services and Bing search engine has fueled excitement among investors. Shares closed just below the all-time intraday high of $349.84 yesterday but is trading higher (and at record levels) in premarket trading at $350.30 currently

Nvidia this week surpassed $1T market capitalization, Apple closed at all-time highs yesterday and Adobe, another AI play, announced better earnings and increased forward guidance after the close. Its shares are trading at $513.30 in pre-market trading after closing at $490.91.

US yields are higher in the short end, but the 30-year is marginally lower. Yesterday, yields moved lower helped by weaker employment, industrial production, and import/export prices.

A snapshot of the markets currently shows:

  • Crude oil is trading little changed at $70.85
  • Spot gold is trading up $10.70 or 0.55% at $1965.66
  • Silver is up $0.27 or 1.14% to $24.10
  • Bitcoin is trading at $25,446. It was trading around $25,317 near 5 PM ET yesterday

In the premarket for US stocks, the major indices are trading modestly higher in premarket trading

  • Dow Industrial Average is trading up 7 points after yesterday’s 428.73 point search
  • S&P index is trading up 1.16 points after yesterday’s 53.27 point rise
  • NASDAQ index is trading up 26 points after yesterday’s 156.34 point rise

In the European equity markets, the major indices are higher

  • German DAX up 0.39%
  • France’s CAC up 0.98%
  • UK’s FTSE 100 up 0.20%
  • Spain’s Ibex up 0.40%
  • Italy’s FTSE MIB up 0.44% (delayed)

In the Asian Pacific market today the Nikkei 225 close at a new high

  • Japan’s Nikkei rose 0.66%
  • Hang Seng index rose 1.07%
  • Shanghai composite index rose 0.63%
  • Australia’s S&P/ASX 200 index rose 1.06%

In the US debt market yields higher in the short and in mostly lower in the long and

  • 2-year yield 4.690% +4.3 basis points
  • 5-year yield 3.545% +2.2 basis points
  • 10-year yield 3.734% +0.6 basis points
  • 30-year yield 3.841% -0.7 basis points

In the European debt market, benchmark 10 year yields are lower:

Oh… TGIF to all!

This article was written by Greg Michalowski at Source