This week, the trend of a stronger US dollar continues. USD/JPY briefly rose to the high 149 yen range, and it is now approaching the key level of 150 yen. Meanwhile, EUR/USD temporarily dipped into the 1.04 range, and GBP/USD is getting close to breaking below the 1.21 level.
Several factors have been cited as contributing to the overall strength of the US dollar. The US Federal Reserve has suggested one more interest rate hike within the year at the recent FOMC meeting and raised its outlook for interest rates next year. In the US, major automobile manufacturers are implementing wage increase strikes, adding pressure on wages and potentially influencing inflation. External factors include concerns that rising crude oil prices may lead to a surge in energy costs again. In the short term, the rekindling of concerns about the US debt ceiling is also noted, which could result in pressure on US bond yields. Inflation and the anticipation of prolonged high-interest rates are affecting the stock market, driving a risk-averse mood and leading to increased demand for the US dollar.
The market seems to be somewhat independent, and it’s essential to remain cautious as it tends to lean toward buying the dollar in response to economic indicators. Therefore, it is crucial to monitor the market reaction closely.
Upcoming economic indicators include the Eurozone Consumer Confidence Index (final) for September, Eurozone Economic Sentiment for September, South African Producer Price Index for August, Germany’s Consumer Price Index (flash) for September, US Real GDP (final) for the second quarter of 2023, US Initial Jobless Claims (09/17 – 09/23), and US Existing Home Sales Index for August, among others.
The German Consumer Price Index is expected to increase by +4.6% compared to the previous year, indicating a significant slowdown from the previous +6.1%. However, when the results from North Rhine-Westphalia were already announced, showing a significant slowdown from +5.9% to +4.2%, the Euro barely reacted. The slowing growth in headline inflation is believed to be due to the exceptionally high growth rates from a year ago, and the market has likely priced this into its expectations.
USD/JPY continues to hover around the 149 yen range. It appears that verbal intervention has already been fully employed, so the market may be awaiting actual intervention. If USD/JPY enters the 150 yen range, caution will be required.
EUR/USD has experienced selling pressure, and it is expected that around the 1.0500 level will act as substantial support. Many banks have set lower targets around the 1.0500 area, and its significance as a round number may attract orders. Consequently, the buying of EUR/USD is expected to persist.