Yen Rallies as Japanese Stocks Fall; Dollar Steadies

The U.S. dollar lost during yesterday’s trading session as a strong rebound in American equities led to a decrease in demand for the greenback.

USD

However, a fresh bout of volatility and lower European stock indexes has given the dollar a chance to recoup some losses.

The U.S. economic docket is fairly empty today. But as we stated yesterday, tomorrow could prove to be a pivotal day for the greenback. Consumer prices will be released at 8:30 a.m. tomorrow. Traders will be looking for signs that wage growth is making its way into the economy in the way of inflation. A higher than expected reading could send the U.S. dollar higher as it will help confirm the Federal Reserve rate-hiking path. Higher inflation will also likely cause more volatility and a new sell-off in equity markets. We believe the greenback is likely to hold in current ranges ahead of tomorrow’s data.

 

JPY

The Japanese yen rallied over 1.0% as the Japanese Nikkei sank after being closed for a national holiday on Monday. The yen is headed for its strongest close since November 2016. The aggressive move in the USD/JPY prompted verbal intervention from the Japanese Vice Minister of International Affairs. Mr. Asakawa said he was “closely watching” movement in the currency. The market has basically ignored his comments as the yen continues to gain.

 

GBP

The British pound built on yesterday’s gains versus the U.S. dollar after a report showed that inflation is still elevated in the U.K. The British Consumer Price Index registered stronger than expected. The core reading was a 3.0% year over year and the headline reading was at 2.7% year over year. Both were slightly above expectations and higher than the Bank of England’s 2.0% target. High inflation may eventually force the Bank of England to raise rates in the medium term, despite the persistent uncertainty surrounding Brexit.