- The USD/JPY remains supported above 144.00 while commercial conversations between the US and China are still in the focus.
- The hard line position of the Governor of the Bank of Japan, Kazuo Ueda, limits the weakness of the YEN.
- The US dollar is stabilized before the US inflation data on Wednesday, which could contribute to Fed fees expectations.
The Japanese Yen (JPY) is stabilizing against the US dollar (USD) on Tuesday, with the USD/JPy torque around the level of 144.00 in a relatively quiet trade.
With the markets focused on commercial negotiations between the US and China and the feeling of broader risk, the USD/JPY remains sensitive to changes both in geopolitical developments and in the expectations of interest rates.
Although commercial conversations in London seem to be advancing, a tone more tone of the Bank of Japan (BOJ) has helped limit a greater fall of Yen.
On Tuesday, the governor of the Boj, Kazuo Ueda, declared that inflation still has a path to go to achieve sustainably the 2%objective. Ueda said that “we will increase interest rates if we have enough confidence that the underlying inflation is approaching 2% or moves around 2%.”
Market participants interpreted these comments as a reduction in the probability of an imminent increase in interest rates.
On Wednesday, the next fundamental catalyst in the US economic calendar will be the publication of consumer price index (CPI) of the USA for May. The US General CPI is expected to increase 0.2% in monthly terms. Inflation is expected to increase 2.5% year -on -year, from 2.3% in April.
The underlying IPC is expected to exclude food and energy prices, show an intermencing 0.3% increase in May compared to 0.2% in April. The interannual figure is also estimated to reflect an increase of 0.1%, rising to 2.9% compared to 2.8% in April.
A higher than expected figure could rekindle the strength of the USD by strengthening the expectations that the Federal Reserve (FED) maintain the fees, while a weaker number could weigh on the dollar.
US interest rates
Financial institutions charge interest rates on loans to borrowers and pay them as interest to savers and depositors. They influence the basic types of interest, which are set by central banks based on the evolution of the economy. Normally, central banks have the mandate to guarantee the stability of prices, which in most cases means setting as an objective an underlying inflation rate around 2%.
If inflation falls below the objective, the Central Bank can cut the basic types of interest, in order to stimulate credit and boost the economy. If inflation increases substantially above 2%, the Central Bank usually rises the interest rates of basic loans to try to reduce inflation.
In general, higher interest rates contribute to reinforce the currency of a country, since they make it a more attractive place for world investors to park their money.
The highest interest rates influence the price of gold because they increase the opportunity cost of maintaining gold instead of investing in an asset that accrues interest or depositing effective in the bank.
If interest rates are high, the price of the US dollar (USD) usually rises and, as gold quotes in dollars, the price of low gold.
The federal funds rate is the type to a day that US banks lend each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set at a fork, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the aforementioned figure.
Market expectations on the interest rate of the Federal Reserve funds are followed by the Fedwatch of the CME tool, which determines the behavior of many financial markets in the forecast of future monetary policy decisions of the Federal Reserve.
American dollar today
The lower table shows the percentage of US dollar change (USD) compared to the main coins today. US dollar was the strongest currency against pound sterling.
| USD | EUR | GBP | JPY | CAD | Aud | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.08% | 0.18% | 0.12% | -0.20% | -0.20% | -0.09% | -0.04% | |
| EUR | 0.08% | 0.27% | 0.20% | -0.09% | -0.11% | -0.01% | 0.05% | |
| GBP | -0.18% | -0.27% | -0.16% | -0.36% | -0.37% | -0.27% | -0.21% | |
| JPY | -0.12% | -0.20% | 0.16% | -0.29% | -0.35% | -0.29% | -0.24% | |
| CAD | 0.20% | 0.09% | 0.36% | 0.29% | -0.01% | 0.09% | 0.16% | |
| Aud | 0.20% | 0.11% | 0.37% | 0.35% | 0.01% | 0.12% | 0.16% | |
| NZD | 0.09% | 0.00% | 0.27% | 0.29% | -0.09% | -0.12% | 0.06% | |
| CHF | 0.04% | -0.05% | 0.21% | 0.24% | -0.16% | -0.16% | -0.06% |
The heat map shows the percentage changes of the main currencies. The base currency is selected from the left column, while the contribution currency is selected in the upper row. For example, if you choose the US dollar of the left column and move along the horizontal line to the Japanese yen, the percentage change shown in the box will represent the USD (base)/JPY (quotation).
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
