the impression from last week’s FOMC meeting and the weak US employment statistics at the end of last week initially led to a weakening of the dollar as yields on US Treasuries fell. However, a series of comments from major central bank officials have made the US dollar stronger this week.
Yesterday, Federal Reserve Chair Jerome Powell stated that he is not convinced they have done enough tightening and that they would act promptly if necessary. This led to a strong buying response in the US dollar. The USD/JPY exchange rate has been trading firmly above the 151 yen level. While there is concern about intervention by the Japanese government and the Bank of Japan at this level, there hasn’t been any downward pressure. The Bank of Japan’s commitment to continued easing is strong, and the interest rate differential between Japan and the US is seen as a driving force for yen depreciation.
This week, central bank officials from the US, the UK, and Europe have voiced opinions that interest rates should remain high until inflation targets are achieved. Additionally, they emphasized that discussions of rate cuts are premature in response to speculation that started after last week’s FOMC meeting and US employment statistics. With a long road still ahead for inflation control, central banks aim to quash early expectations of rate cuts.
Next week, there will be important inflation indicators released, including US Consumer Price Index and UK Consumer Price Index. While a slowdown in growth is anticipated, central banks seem intent on signaling that inflation levels are still too high.
The question now is whether the current trend of a stronger US dollar will continue over the weekend or if market dynamics will change.
In the international markets, economic indicators to be released include monthly GDP (September), real GDP preliminary figures (3Q), industrial production index (September), manufacturing production (September), and trade balance (September) for the UK. Monthly GDP is expected to be flat compared to the previous month, and real GDP for the third quarter is forecasted to decline by 0.1%. These numbers are expected to indicate a weak economic situation. In the US, the University of Michigan Consumer Sentiment Index preliminary reading for November will be released. Market expectations are at 63.8, similar to the previous reading. The expected one-year inflation rate is anticipated to slow to 4.0% from the previous 4.2%.
(Source: Minna no Kabushiki)
Continued strong USD buying due to Powell’s comments. Keep an eye on USD’s movement after the University of Michigan Consumer Sentiment Index at 24:00 today.