Global Market Insights - Forex, Futures, Stocks

Dollar rises to a 38-year high against yen

Duration:: 3m
Broadcast on:: 27 Jun 2024
Audio Format:: mp3

Dollar rises as investors digest Fed remarks. Dollar/yen breaks 160,
triggers intervention warnings. Wall Street trades in the green, AI still the
main driver.

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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 Thursday the 27th of June, 2024, and you're listening to the Market Comment podcast by Harlembos Bisseros. I'm Maria Busser-Dovies, thanks for joining us at XM.com. The U.S. dollar traded higher against all its major counterparts on Wednesday, gaining the most ground against the Japanese yen. Today the greenback is stabilizing or pulling back. With no major events on yesterday's agenda to drive the dollar, it seems that traders continue to digest hawkish remarks by Fed policymakers. On Tuesday, Fed Governor Michelle Bowman reiterated the view that holding interest rates steady for some time may be enough to tame inflation, while Governor Lisa Koch noted that lowering borrowing costs will be appropriate at some point, remaining vague about the timing of the first reduction. Fed governors are permanent rate-setters, and that's maybe why their remarks are taken seriously by the investment community. Indeed, although the number of basis points worth of rate cuts by the end of the year remained at around 45, the probability of a first reduction in September eased to around 68%. Attention will now turn back to economic releases and tomorrow's core PCE price index for May, which is the Fed's favorite inflation metric. The forecast is for a slowdown, which is supported by the slide in the core CPI rate for the month. This could prompt traders to re-increase their September cut bets, and thereby result in a pullback in the U.S. dollar. The yen was the main loser, even as Japan's 10-year government bond yield edged north. Dollar Yen emerged above the round number of 160, whose breach triggered two intervention episodes around two months ago, with a pair hitting its highest level since December 1986. Considering that the summary of opinions from the latest B.O.J. gathering increased speculation for a July hike, a still-tumbling yen appears to be a strange development. Perhaps investors are still attracted by dollar-based assets, trying to take advantage of interest rates at 5.25-5.5% before the Fed starts lowering them. U.S. rates are much higher than the B.O.J.'s short-term rates, which rest within the 0-0.1% range. Be that as it may, the yen's retreat sparked fresh intervention warnings, with Japan's top currency diplomat Masado Kanda saying that they are seriously concerned and on high alert. With that in mind, Dollar Yen traders may liquidate some of their positions in fear of another round of intervention, thereby allowing the pair to pull back below 160 in the following days, even though the broader trend remains positive. Indeed the pair is already pulling back today, and a slowdown in tomorrow's U.S. core PCE price index could extend the retreat. All three of Wall Street's main indices ended Wednesday's session in the green, with the tech-heavy Nasdaq gaining the most. Although both the Nasdaq and the S&P 500 are still hovering below their record highs, it may be a matter of time before they surpass them. The latest rebound in NVIDIA's stocks suggest that investors remain willing to continue pricing growth opportunities related to artificial intelligence, while as far as U.S. interest rates are concerned, delayed reductions by a couple of months may not be much of a concern for equity traders as long as the expected direction remains the same. Thanks for listening. This is today's Market Comment here at XM.com. Thank you for listening to another episode of Global Market Insights brought to you by XM.com. For more in-depth technical and fundamental analysis, be sure to visit www.xm.com/research. [BLANK_AUDIO]