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News

USD/JPY spikes again on rate hike prospects

 

Wednesday, September 07, 2022, 8.45am GMT

The news shaping the markets today

A US official disclosed that Russia had been forced to buy military weapons from North Korea amid heightened sanctions on the country. The US dollar index traded higher this morning with continuing concerns around the Russia-Ukraine war.


Australia’s economy grew 0.9% during the first quarter of 2022, following a 0.7% expansion in the previous quarter. However, the latest reading came in below market expectations of 1.0% growth, exerting pressure on the AUD/USD forex pair.


Japan’s foreign exchange reserves fell to $1,292,072 million in August, a decline of $30,962 million from July end, which sent the Nikkei 225 index lower this morning.


South Korea’s current account surplus narrowed to $1.09 billion in July, from June’s surplus of $5.61 billion, which sent the KRW/USD pair lower in forex trading this morning.


Chile’s central bank increased its benchmark interest rate by 100bps to 10.75%, exceeding the consensus estimate of a 75bps hike. However, the CLP/USD forex pair remained under pressure due to the strength of the US dollar.

 

What’s happening: The US dollar surged to a 24-year high versus the Japanese yen on Wednesday.

What happened: Recently released economic data increased speculations of the US Federal Reserve continuing to aggressively raise interest rates.

The greenback also hit new highs versus some other major currencies this morning.

Why it matters: Traders in the global currency markets are assessing interest rate hikes by central banks around the world in a bid to combat surging inflation.

The euro has been under pressure lately, trading well below the parity level, with European Union leaders scheduled to meet this Friday to discuss the energy crisis in the region, including options of capping gas prices. Concerns around energy were fuelled by Russia’s decision to keep the Nord Stream 1 gas pipeline closed for an indefinite period.

Data released Tuesday showed a surprise uptick in US services activity, which reinforced views of the country’s economy not performing as badly as feared and raised prospects of the Fed hiking increase rates by 75 basis points at its upcoming meeting in September. The ISM services PMI rose to 56.9 in August, from 56.7 in July, recording the strongest growth in the country’s services activity in four months.

The yield on the US 10-year Treasury note surged to as high as 3.365% this morning, reaching the highest level since June 16. With the Japanese currency being sensitive to US rate movements, the USD/JPY climbed to as high as 143.59 in early trading today amid an increase in US Treasury yields.

The European Central Bank is scheduled to announce its interest rate decision on Thursday, with markets expecting a rate increase of 75bps.

The EUR/USD forex pair declined by around 0.2% to 0.9886 this morning, after tumbling as low as 0.9864 overnight.

The US dollar index, which measures the greenback’s performance versus a basket of major currencies, gained around 0.3% to reach 110.53 this morning, approaching Tuesday’s 20-year high of 110.57.

The AUD/USD pair fell to its lowest level since July 14, even after the Reserve Bank of Australia raised interest rates by half a percentage point to 2.35% on Tuesday. The NZD/USD forex pair also declined to the weakest level since May 2020.

What to watch: Traders will closely monitor comments from central bank officials from around the world. The release of the US balance of trade data will also remain in focus today.

The markets today

Gold will be in focus today after closing lower on Tuesday

Context: Gold closed lower on Tuesday, while silver recorded a second straight session of gains.

Details: Concerns around the global economy have been fuelled by recent covid-19 restrictions in China.

However, the continued raising of interest rates by central banks around the world has limited the demand for gold, although the yellow metal has outperformed equity markets so far this year.

Continued strength in the US dollar also impacted gold on Tuesday. The yellow metal and the greenback compete for a place in investor portfolios as safe-haven options. Moreover, gold prices are quoted in US dollars in the global markets and any increase in the greenback makes the yellow metal more expensive for traders using other currencies.

The US dollar index rose around 0.7% on Tuesday, with the 10-year Treasury climbing to 3.3378%. The unexpected rise in US service activity also exerted pressure on gold prices.

Gold for December delivery fell by $9.70, or 0.6%, to close at $1,712.90 per ounce on Comex on Tuesday. December silver futures rose around 0.2% to settle at $17.908 per ounce.

December copper futures rose 1.4% to $3.462 per pound on Tuesday, while October platinum gained 1.9%, to reach $833.90 per ounce and December palladium settled at $1,973.20 per ounce, down 2.6%.

What to watch: Traders will continue monitoring the US dollar, which could limit gold’s performance ahead. Upcoming interest rate decisions from global central banks will also remain in focus.

Other Markets: US indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.55%, 0.41% and 0.72%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY – 143.67 and 144.09 Negative
USD/CAD – 1.3188 and 1.3198 Negative
Nasdaq 100 – 11986.07 and 12037.97 Positive
DAX 40 – 12838.07 and 12899.84 Positive
WTI Crude Oil – 85.26 and 85.57 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (0.9890, -0.15%) Dow ($31,058, -0.35%) Brent ($91.77, -1.1%)
GBP/USD (1.1478, -0.36%) S&P500 ($3,896, -0.36%) WTI ($85.66, -1.4%)
USD/JPY (143.45, 0.46%) Nasdaq ($11,976, -0.36%) Gold ($1,708, -0.3%)

What else to watch today

Denmark’s industrial production, Germany’s industrial production, Norway’s current account and industrial production, Romania’s GDP growth rate, South Africa’s foreign exchange reserves, Sweden’s industrial output, UK’s house price index, France’s foreign exchange reserves, Austria’s balance of trade and wholesale prices, Czech Republic’s retail sales and foreign exchange reserves, Philippines’ foreign exchange reserves, Switzerland’s foreign exchange reserves, China’s foreign exchange reserves, Italy’s retail sales, Taiwan’s balance of trade, Hong Kong’s foreign exchange reserves, Eurozone’s GDP growth rate and employment change, Singapore’s foreign exchange reserves, Mexico’s auto exports and car production, Nigeria’s balance of trade, US MBA mortgage applications, Redbook index and API crude oil stocks, Poland’s foreign exchange reserves and National Bank of Poland’s interest rate decision, Canada’s balance of trade, Ivey Purchasing Managers Index and Bank of Canada’s interest rate decision, Chile’s balance of trade, Russia’s foreign exchange reserves, Israel’s foreign exchange reserves, Turkey’s treasury cash balance, Spain’s consumer confidence indicator, as well as Argentina’s industrial production.

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