Forex News
- NZD/USD prolongs its weekly uptrend for the third straight day amid a weaker USD.
- Fed rate cut bets and the Israel-Iran ceasefire continue to undermine the Greenback.
- Bets more RBNZ rate cuts and trade uncertainties warrant caution for the NZD bulls.
The NZD/USD pair attracts fresh buyers near the 0.6000 psychological mark during the Asian session on Wednesday and climbs back closer to the weekly top touched the previous day. Spot prices currently trade near the 0.6030-0.6035 area and look to prolong a three-day-old recovery momentum from a one-month low set at the start of this week amid a weaker US Dollar (USD).
The USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near a one-week low touched on Tuesday amid the growing acceptance that the Federal Reserve (Fed) will lower borrowing costs further this year. The USD bulls seem rather unimpressed by Fed Chair Jerome Powell's relatively hawkish testimony on Tuesday, reaffirming the wait-and-see rate policy amid expectations that US President Donald Trump's trade tariffs will boost inflation.
Meanwhile, the optimism over the Israel-Iran ceasefire, which came into effect on Tuesday, remains supportive of the upbeat market mood. This turns out to be another factor undermining the Greenback's safe-haven status and benefiting the risk-sensitive Kiwi. The NZD/USD pair draws additional support from the better-than-expected domestic data, showing that New Zealand posted a monthly trade surplus of NZ$1.235 billion in May and the annual deficit stood at NZ$3.79 billion.
However, the growing acceptance that the Reserve Bank of New Zealand (RBNZ) will cut rates further on the back of lower inflation and economic headwinds stemming from US tariffs might hold back the NZD bulls from placing aggressive bets. Even from a technical perspective, the recent repeated failures near the 0.6065-0.6070 supply zone make it prudent to wait for a sustained move beyond the said barrier before positioning for any further appreciating move.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
- GBP/USD appreciates as the US Dollar loses ground due to dampened safe-haven demand following the Israel-Iran ceasefire.
- Fed Chair Powell strengthened his case for delaying rate cuts, likely until sometime in the fourth quarter.
- The Pound Sterling may struggle following dovish remarks from the BoE officials on policy stance.
GBP/USD extends its winning streak for the third successive session, trading around 1.3620 during the Asian hours on Wednesday. The pair is hovering around 1.3648, the highest since February 2022, which was recorded on Tuesday. The risk-sensitive GBP/USD pair receives support from the improved risk appetite amid easing tensions in the Middle East.
US President Donald Trump announced that a ceasefire between Iran and Israel had taken effect on Tuesday, raising hopes for an end to the 12-day conflict. However, caution lingered amid uncertainty over the ceasefire’s durability. Traders will likely focus on the potential revival of nuclear talks and the fate of Iran’s enriched uranium.
During his testimony before the congressional budget committee on Tuesday, Fed Chair Powell advocated for delaying rate cuts, likely until sometime in the fourth quarter. Powell added, “When the time is right, expect rate cuts to continue.” He also said that data suggests that at least some of the tariffs will hit consumers and will start to see more tariff inflation starting in June.
Kansas City Fed President Jeff Schmid said early Wednesday that the central bank should wait to see how uncertainty surrounding tariffs and other policies impacts the economy before adjusting interest rates. Schmid added that the resilience of the economy gives us the time to observe how prices and the economy develop, per Bloomberg.
The upside of the GBP/USD pair could be restrained as the Pound Sterling (GBP) may face challenges due to dovish remarks from the Bank of England’s (BoE) officials on policy outlook. BoE Governor Andrew Bailey pointed to slowing wage growth and rising economic inactivity, though he stressed concerns over the reliability of labor data. Deputy Governor Dave Ramsden said labor market loosening was behind his vote for a rate cut, warning it could push inflation below the 2% target.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Speaking at the t World Economic Forum (WEF) in Tianjin on Wednesday, China’s Premier Li Qiang said that “Judging from key indicators, China's economy showed a steady improvement in the second quarter.”
Additional quotes
Regardless of how the international environment evolves, China's economy has 'consistently maintained a strong momentum for growth.
We are confident in our ability to maintain a relatively rapid growth rate for China's economy.
Aim for China to transition from a major manufacturing power to a mega consumer market.
That will open up vast, untapped markets for businesses in various countries.
Willing to share original technologies and innovative scenarios with various countries.
Hope all will engage in activities that benefit greater good, abide by market principles in all endeavors, persist in doing the 'right thing'.
Urge all parties refrain from politicizing and securitizing economic and trade issues excessively.
Oppose decoupling, and focus on long-term goals.
Encourage all to seize opportunities presented by the current wave of technological innovation and industrial transformation.
China warmly welcomes enterprises from all over the world to invest in China, establish a strong foothold here.
Market reaction
AUD/USD is keeping its range play intact at around 0.6500 following these headlines.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
- WTI price loses ground to near $64.90 in Wednesday’s Asian session.
- Expectations Israel-Iran ceasefire will reduce the risk of oil supply disruptions in the Middle East weigh on the WTI price.
- US crude oil inventories declined by 4.277 million barrels in the week ended June 20, according to the API.
West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $64.90 during the Asian trading hours on Wednesday. The WTI price tumbles to a two-week low near $64.75 after Israel agrees to a ceasefire with Iran after nearly two weeks of conflict.
The WTI price edges lower after news of the ceasefire between Israel and Iran. Investors expect a truce between both countries will reduce the risk of oil supply disruptions in the Middle East. "If the ceasefire is followed as announced, investors might expect the return to normalcy in oil," said Priyanka Sachdeva, senior market analyst at Phillip Nova.
US Crude Oil Inventories saw another sharp draw last week. The American Petroleum Institute (API) weekly report showed crude oil stockpiles in the US for the week ending June 20 declined by 4.277 million barrels, compared to a fall of 10.133 million barrels in the previous week. So far this year, crude oil inventories are up 3.3 million barrels, according to oil price calculations of API data.
Oi traders will closely monitor the developments surrounding the Israel-Iran conflict. Any signs of renewed escalation could raise the fears of oil global supplies, which might boost the WTI price. The weekly crude oil stock from the US Energy Information Administration will be published later on Wednesday.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
Australia’s monthly Consumer Price Index (CPI) rose by 2.1% in the year to May, compared to a 2.4% rise seen in April, according to the data published by the Australian Bureau of Statistics (ABS) on Wednesday.
The market forecast was for 2.3% growth in the reported period.
Market reaction to Australia’s monthly CPI inflation
At the time of writing, the AUD/USD pair is trading 0.21% higher on the day to trade at 0.6501.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
The Bank of Japan (BoJ) board member Naoki Tamura said on Wednesday that inflation is on track or moving somewhat stronger than expected.
Key quotes
Inflation on track or moving somewhat stronger than expected.
Upward inflation risk had been elevated until March.
Japan’s wage momentum sufficiently heightening.
Consumer inflation data for April, May overshooting expectations.
While downward pressure exists, risk of Japan’s wage, price-setting behaviour reverting to low growth environment is small.
US tariff likely to weigh on Japan’s economy, prices but inflation to Tay near 2% until fiscal 2027.
Market-based services inflation exceeding 2%, rent and public service costs also gradually rising.
Rise in fresh food prices can no longer be described as temporary, must watch moves carefully.
Medium-, long-term inflation expectations heightening gradually.
Household, corporate inflation expectations are already around 2%.
Must be vigilant to risk of Japan’s inflation expectations overshooting further.
My basic stance is BOJ must raise rate in timely, appropriate fashion without being too quick or too late.
Don’t see 0.5% as barrier for BoJ rate hikes.
JGB market function has improved somewhat but remains low.
Voted against June decision to slow pace of bond buying taper next year on view BOJ should normalise bond holdings balance as soon as possible.
Must steadily normalise balance sheet, even though it may take time.
Market reaction
At the press time, the USD/JPY pair is down 0.49% on the day to trade at 151.94.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
On Wednesday, the People’s Bank of China (PBOC) set the USD/CNY central rate for the trading session ahead at 7.1668 as compared to the previous day's fix of 7.1656 and 7.1709 Reuters estimate.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
- Gold price loses traction to around $3,325 in Wednesday’s early Asian session.
- The Iran-Israel ceasefire weighs on safe-haven assets like Gold.
- Fed’s Powell said US central bank should not hurry to adjust policy.
The Gold price (XAU/USD) edges lower to near $3,325 during the early Asian session on Wednesday. The precious metal loses ground due to the de-escalation of tensions in the Middle East. Traders brace for the Federal Reserve’s (Fed) Chair Jerome Powell testifies later on Wednesday.
The yellow metal retreats from recent highs after news of the ceasefire between Israel and Iran. A truce between both countries came into effect following four waves of Iranian attacks on Israeli-occupied territories.
"The de-escalation of tensions in the Middle East is the primary factor that's weighing on gold. The safe-haven bid has diminished, and the market is in more of a risk-on mode," said Peter Grant, vice president and senior metals strategist at Zaner Metals.
Kansas City Fed President Jeff Schmid said on Wednesday the US central bank has time to study tariff effects on inflation before any rate decision. Schmid’s comments suggest he’s in no rush to lower borrowing costs, echoing what Fed Chair Jerome Powell said earlier Tuesday
Fed Chair Powell reiterated his stance that policymakers should not hurry to adjust policy, saying that the US central bank will continue to wait and see how the economy evolves before deciding whether to reduce its key interest rate. Less dovish remarks from the Fed Chair might help limit the Gold’s losses in the near term.
Money markets have fully priced in two Fed reductions by the end of 2025, with a first move in September far more likely than next month, though expectation of a July reduction rises from last week.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Federal Reserve Bank of Kansas City President Jeff Schmid said early Wednesday that the Fed should wait to see how tariffs and other policies impact the economy before adjusting interest rates, per Bloomberg.
Key quotes
With all this uncertainty, the current posture of monetary policy, which has been characterized as ‘wait-and-see,’ is appropriate.
The resilience of the economy gives us the time to observe how prices and the economy develop.
“Certainly, with the inflation of the past couple of years still in people’s minds, I will be carefully watching the monthly price data for signs of broad-based price increases that might further challenge an already fragile price-setting psychology.
Market reaction
The US Dollar Index (DXY) is trading 0.07% lower on the day at 97.90, as of writing.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
The Bank of Japan (BoJ) published the Summary of Opinions from the June monetary policy meeting, with the key findings noted below.
Key quotes
One member said: While much of the hard data for April and May has been relatively solid, it is likely that the effects of tariff policies are yet to materialize.
One member said while the impact of U.S. tariff policy will certainly exert downward pressure on firms’ sentiment, the bank needs to take some time to examine the magnitude of the impact on the real economy.
One member said despite the impact of U.S. tariff policy, many firms will likely continue to raise wages to address labor shortages, make high levels of business fixed investment.
One member said although the direct impact of U.S. tariff policy has not been observed so far, Japan’s economy has been somewhat stagnant.
One member said Japan’s economy at crossroads between making a transition to a “growth-oriented economy driven by wage increases and investment” and falling into stagflation.
One member said although uncertainty regarding trade policies remains extremely high, on the domestic front, wage developments have been solid, and the CPI has been slightly higher than expected.
One member said as the price of rice could affect perceived inflation and inflation expectations, it is necessary to closely monitor developments in rice prices.
One member said as US, Europe and emerging economies leaning toward accommodative policies, Japan’s economy could unexpectedly be pushed up or experience inflationary pressure.
One member said if its outlook for economic activity and prices will be realized, the bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate.
One member said given high uncertainty, the bank should, at this point, maintain accommodative financial conditions with the current interest rate level and thereby firmly support the economy.
One member said even though prices have been somewhat higher than expected, it is appropriate for the Bank to maintain current policy, given downside risks stemming from U.S. tariff policy and situation in the Middle East.
One member said with extremely high uncertainty in the outlook, it is appropriate for the Bank to maintain the current policy interest rate for the time being.
One member said increased volatility in the super-long-term zone may spill over to the entire yield curve, thereby spreading unintended tightening effects to the market as a whole.
One member said situation of government bond markets around the world has been a major topic of discussion, such as at international meetings, attention is warranted on the possibility that developments overseas will spread to Japan.
One member said although the CPI has been higher than expected, the pass-through of higher wages to services prices seems to have plateaued.
One member said with inflation being at levels higher than expected, the bank may face a situation where it should adjust the degree of monetary accommodation decisively, even when there is high uncertainty.
Market reaction
Following the BoJ’s Summary of Opinions, the USD/JPY pair is down 0.03% on the day to trade at 144.90 as of writing.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
Forex Market News
Our dedicated focus on forex news and insights empowers you to capitalise on investment opportunities in the dynamic FX market. The forex landscape is ever-evolving, characterised by continuous exchange rate fluctuations shaped by vast influential factors. From economic data releases to geopolitical developments, these events can sway market sentiment and drive substantial movements in currency valuations.
At Rakuten Securities Hong Kong, we prioritise delivering timely and accurate forex news updates sourced from reputable platforms like FXStreet. This ensures you stay informed about crucial market developments, enabling informed decision-making and proactive strategy adjustments. Whether you’re monitoring forex forecasts, analysing trading perspectives, or seeking to capitalise on emerging trends, our comprehensive approach equips you with the insights needed to navigate the FX market effectively.
Stay ahead with our comprehensive forex news coverage, designed to keep you informed and prepared to seize profitable opportunities in the dynamic world of forex trading.
