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The Bank of Japan’s decision about Friday’s Asian session will be the week’s final major event. The University of Michigan will publish its Consumer Sentiment survey in the US later in the day. Market players will continue to analyse the decisions made at the most recent central bank meetings on Friday.
Key Developments
The US Dollar tumbled on Thursday and it looks vulnerable to further losses. The improvement in risk sentiment and falling US yields triggered a sharp decline. Wall Street indexes ended with gains of more than 1%. Crude oil prices rose more than 3%, and Gold and Silver rebounded sharply, erasing heavy losses. Economic data from the US came in mixed.
The Euro gained strength in response to the ECB’s rate increase and Lagarde’s hawkish remarks, which helped the EUR/USD pair. The surge later in the day was fueled by the US Dollar’s decline. The momentum was maintained as the pair reached monthly highs at 1.0950 and closed close to them. The final measurement of the Eurozone’s (EZ) inflation rate is due on Friday, although it is not anticipated to be significant. EZ Q1 labour costs are also due.
ECB President Lagarde surprisingly announced another rate hike for July. Analysts tend to revise forecast for July accordingly, but consider further rate hikes thereafter unlikely despite Lagarde’s hawkish statements. This is because the economy is likely to disappoint the ECB’s still optimistic expectations. Moreover, inflation will probably have fallen to around 4% by the meeting in mid-September. Moreover, a deposit rate of 3.75% in mid-September would be well above the neutral rate, which the ECB sees at only 2%.
The EUR/GBP peaked at 0.8595 but then pulled back to 0.8560. The GBP/USD posted its highest daily close in a year, slightly below 1.2800. Next week, the Bank of England will have its monetary policy meeting. The USD/JPY peaked at 141.50, the highest level in seven months, and then pulled back to 140.25 amid falling US yields. The Bank of Japan will announce its decision on Friday and is expected to maintain its monetary policy stance. Any surprise will trigger sharp moves. The EUR/JPY jumped to the highest level since 2008 above 153.00, reflecting the divergence between the Bank of Japan and the ECB, alongside risk appetite.
The Australian Dollar outperformed on Thursday, boosted by the employment data from Australia and also by risk appetite and speculation about Chinese economic stimulus. AUD/USD rose for the sixth consecutive day, moving towards 0.6900.
Economic Data
US Retail Sales rise 0.3% in May vs. -0.1% expected. Industrial Production drops 0.2% in May missing expectations of 0.1% increase. NY Fed Empire State Manufacturing Index jumps to 6.6 in June vs. -15.1 expected.
Philadelphia Fed Manufacturing Index drops to -13.7 in June vs. -14 expected.
Weekly Initial Jobless Claims remain at 262K vs. 249K expected.
Also Read:
Why is Yellen warning of decoupling from China?
Oil futures higher on strong Chinese data, softer dollar
Gold rebounds from three-month low on soft dollar
Which cryptocurrencies challenge negative sentiment after Fed’s pause?
