Forex News

TD Securities notes the Bank of Japan (BoJ) left its policy rate at 1% with an 8–1 vote, as Governor Ueda delivered notably hawkish remarks. Despite this, the Japanese Yen (JPY) reaction was muted, and the TD forecasts the next 25 bps hike only in December. It expects traders to stay wary of intervention and sees USD/JPY trading in a wide range in coming weeks.

BoJ on hold with next hike seen in December

"The BoJ left the target rate on hold at 1% in an 8-1 vote."

"Governor Ueda delivered his most hawkish remarks in a long while, but JPY registered a muted reaction."

"Contrary to market pricing, we forecast the next 25bps hike to come only in December."

"Traders are likely to be wary of follow-up intervention efforts given JPY's muted reaction."

"We see USD/JPY in a wide trading range in coming weeks."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• Canada's economy grew at a monthly rate of 0.3% in May.
• USD/CAD reverses part of the recent weakness and approaches the 1.4050 zone.

Canada’s economy cooled a tad in May. Indeed, the Gross Domestic Product (GDP) grew by 0.3%, adding to the previous month's 0.6% expansion (revised from 0.5%), according to data released by Statistics Canada.

From the press release: “Real gross domestic product (GDP) grew 0.3% in May, rising for a second consecutive month, as both goods-producing and services-producing industries expanded in the month. Overall, 13 of 20 industrial sectors contributed to the growth. Goods-producing industries expanded 0.6%, as most sectors comprising the aggregate rose in May. Services-producing industries rose 0.2%, driven in large part by increases in real estate and rental and leasing and public administration."

Market reaction

The Canadian Dollar (CAD) keeps its bullish stance on Friday, motivating USD/CAD to add to the weekly leg lower and breach below 1.4000 in the wake of the release of Canadian GDP data.

Commerzbank’s Carsten Fritsch notes that gold briefly traded above USD 4,100 after the Fed meeting as markets pared back expectations of further rate hikes. Fed funds futures nevertheless continue to imply additional tightening, while persistent inflation is keeping those expectations alive. World Gold Council data point to weak jewellery demand and positive but slower ETF inflows, while Commerzbank expects central bank purchases to remain strong but below last year’s level.

High prices damp demand but support persists

"The gold price rose after Wednesday's Fed meeting and briefly exceeded USD 4,100 per troy ounce yesterday."

"The persistent expectation of Fed interest rate rises should counteract any rise in the gold price."

"These expectations are unlikely to fade for the time being, as inflation is not yet showing sufficient signs of easing."

"For the second half of the year, the WGC does not anticipate any significant upturn in demand."

"Whilst central bank gold purchases are expected to remain strong due to portfolio diversification and as a hedge against inflation and risks, they are likely to remain below the previous year’s level."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Brown Brothers Harriman’s (BBH) Elias Haddad highlights that the Bank of England (BoE) left rates at 3.75% with a 6–3 vote, while Governor Andrew Bailey pushed back against expectations of an imminent hike. Haddad sees room for United Kingdom (UK) rate expectations to be revised lower, a headwind for British Pound (GBP), even as the BoE signals it may slow quantitative tightening against a backdrop of fiscal policy uncertainty.

Rate expectations pose headwind for GBP

"Yesterday, the Bank of England (BoE) kept the policy rate at 3.75% for a fifth straight meeting which was widely expected. The vote split was 6-3."

"We see scope for a downward adjustment to UK rate expectations which is a headwind for GBP. The swaps curve implies 50bps of tightening to 4.35% in the next twelve months."

"Aside from the bank rate decision, the BoE also flagged it may further reduce the pace at which it shrinks its bond holdings. First, the BoE raised its estimate for the increase in the term premium on long-term interest rates due to Quantitative Tightening (QT) by 5bps to between 20-30bps, indicating QT is delivering more tightening than anticipated. Second, a much smaller volume of maturing bonds is in the pipeline next year; £30.5bn vs. £49.1 in the current cycle."

"BoE policymakers will vote on QT at the September 17 meeting. We expect the BoE to reduce its gilt holdings rundown to £50bn over October 2026 to September 2027 from currently £70bn."

"Nonetheless, a slower pace of BoE balance sheet runoff is unlikely to offset the upward pressure on gilt yields from fiscal policy uncertainty. Prime Minister Andy Burnham leans towards higher spending and borrowing, but the details of his fiscal plan may not emerge until the October budget."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

TD Securities strategists highlight that Euro area Harmonised Index of Consumer Prices (HICP) inflation rose to 2.9% y/y in July, with core inflation at 2.5% and services inflation at 3.3%, indicating only limited evidence of meaningful second-round effects. Markets continue to price a 25 bp European Central Bank (ECB) rate hike in September, which remains the TD’s base case. It notes that only a clear and durable resolution to the Middle East conflict would materially alter this outlook.

Euro inflation keeps September hike priced

"Euro area HICP inflation for July came in at 2.9% y/y (market: 2.9%; prior: 2.8%)."

"So overall, there was a small tick up in both core and services but still limited evidence of meaningful second-round effects."

"Markets continue to fully price a 25bp ECB rate hike in September, which remains our base case."

"A material shift in this outlook would likely require a clear and durable resolution to the Middle East conflict."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)