The market has started to move in a direction of USD weakness since the release of last week’s US employment statistics. Following the lower-than-expected increase in non-farm payrolls, speculations of a slowdown in the upcoming US consumer price index (CPI) have pushed down the USD, along with a decline in US bond yields. Yesterday, prominent Fed watcher Nick Timiraos hinted at a slowdown in inflation. Furthermore, factors such as a decrease in used car prices and three consecutive months of declining consumer inflation expectations in the Fed’s survey have contributed to the selling pressure on the USD.
There are also external factors contributing to the selling pressure on the USD. Expectations of continued interest rate hikes in the UK, struggling with high inflation, and concerns about persistent core inflation in the Eurozone have pushed up GBP and EUR against the USD, creating relative selling pressure on the USD. The recently released UK ILO employment statistics, which exceeded expectations in terms of wage growth, have led to buying of GBP/USD. It seems that foreign investors are once again increasing speculation about potential adjustments to the Bank of Japan’s Yield Curve Control (YCC) policy.
Additionally, while the stock market has remained calm today, concerns about the deteriorating economic situation in China, along with the sluggishness in Chinese price statistics, have been pointed out as factors that could lead to risk-off sentiment and strengthen the JPY as a safe-haven currency.
These various factors have combined to prompt adjustments in USD long positions. Market participants have already factored in a significant slowdown in tomorrow’s US CPI. Current market expectations are for a year-on-year increase of +3.1%, compared to the previous +4.0%, and a slowdown in the core year-on-year increase to +5.0% from the previous +5.3%.
In the London market to come, the sustainability of the USD weakness will be tested. However, given the USD weakness since the previous day, there is also likely to be some adjustment to the downside. Economic indicators scheduled for release today include Turkey’s current account balance for May, Germany’s ZEW Economic Sentiment Index for July, and South Africa’s manufacturing production for May. A speech by Bank of France Governor Villeroy de Galhau is also scheduled. However, these are not expected to be decisive factors for the USD.
The USD has been sold off more than expected since yesterday. However, as we approach the release of tomorrow’s US consumer price index, we can expect some adjustments, so it is anticipated that the selling pressure on the USD will temporarily ease tonight.
Today’s strategy is to look for short-term buying opportunities for the USD once the selling pressure subsides.