Yen sinks to fresh 38-year low as officials refrain from verbal intervention. Euro pares gains after CPI dip and French election uncertainty. Dollar edges up on higher yields, but caution ahead of Powell comments.
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Welcome to another episode of Global Market Insights, brought to you by XM.com, where we provide meaningful and informative content about the events that affect market trends and shape global markets. It's Tuesday the 2nd of July, 2024, and you're listening to the Market Comment Podcast by Rafi Poyajian. I'm Marie Episher to these, thanks for joining us at XM.com. The Japanese yen plowed a fresh 38-year low against its U.S. counterpart on Tuesday, hitting $161.75 per dollar amid ongoing doubts about the Bank of Japan's ambition to normalize monetary policy and an unexpected pick-up in U.S. yields. There's been no let-up in the yen slide over the past month, yet there's been a notable absence of verbal warnings by Japanese officials during this latest phase of depreciation. Japan's finance minister Suzuki provided the usual commentary that the government continues to watch the market closely, but there was no explicit intervention warning. Whilst it's possible that Suzuki may not want to take any action until the newly appointed Vice Minister for International Affairs, who's in charge of exchange rate policy, ticks up his post on July 31st, it could also be an indication that the tolerance level for FX intervention has risen. But in some relief for the yen, the currency was trading slightly firmer against other majors, with the weakness against the dollar mostly down to a stronger greenback. Although investors have grown more confidently that the Federal Reserve will be able to slash rates twice this year, the dollar has been in a shallow uptrend since early June, as other central banks are ahead in the race to cut. In recent days, the dollar has been supported by rising treasury yields, lifted by Donald Trump's improved prospects of winning November's presidential election, after Biden's dismal performance in last week's TV debate. The Trump presidency is seen as cutting taxes, which would likely add to America's already very high national debt. The reluctance of Fed officials to ease up on their hawkish stance has also been keeping the dollar elevated. Friday's drop in core PCE inflation and yesterday's weaker than expected ISM manufacturing PMI were the latest evidence that inflationary pressures are subsiding and that the economy is cooling somewhat. Fed Chair Jerome Powell is due to participate in a panel discussion with ECB President Christine Lagarde at the ECB's annual forum in Central Portugal at 1330 GMT. Any suggestion by Powell that a September rate cut could be on the table might see the dollar pull back. As for the euro, the primary focus right now is on France's legislative election, where parties are racing to form alliances ahead of the second vote on Sunday. Although the National Rally Party took the lead in the first round, tactical voting could prevent it from forming a government after the second round. With many constituencies facing a three-way runoff, the centrist and left-wing alliances are encouraging their candidates that came third to stand down to give the second-placed candidate a better chance of beating the National Rally candidate. Although this is more likely to lead to a hung parliament, it might be preferable for investors to having the far right in power, hence the euro could gain on the back of it. Today however, the euro was on the back foot following the flash CPI readings that showed headline inflation fell back to 2.5% in June, boosting the chances of additional rate cuts this year. Later in the day, the jolt's job openings out of the US will be watched ahead of Friday's jobs report. Thanks for listening, this was today's Market Comment here at XM.com. [BLANK_AUDIO]
