Forex News
- USD/JPY retreats from 40-year highs of 163.99 but remains above previous highs at 163.60.
- Investors are biding their time ahead of the Fed's monetary policy decision.
- Fed tightening bets and high oil prices are offsetting the BoJ's hawkish stance.
The Japanese Yen (JPY) has trimmed some losses against the US Dollar (USD) on Wednesday, but USD/JPY dips have been capped above previous highs, in the 163.30 area so far. The Yen remains close to the 40-year high of 163.99 reached earlier this month, with investors awaiting the US Federal Reserve’s (Fed) monetary policy decision due later in the day.
The Fed is likely to leave its monetary policy unchanged. Futures markets, however, show a 35% chance of a rate hike, as measured by the CME Group’s FedWatch Tool, which poses an uncommon degree of uncertainty hours ahead of the decision. A surprise rate hike will likely send the US Dollar rallying, but a pause with some signals of monetary tightening in the coming months might also provide support for the USD.
US economy has been showing signs of resilience to Iran’s war, and inflation remains well above target while recent hostilities in the Gulf have triggered an uptick in Oil prices. Fed Chairman Kevin Warsh is not a big supporter of forward guidance, but policymakers' concerns about inflation are likely to be seen as a hawkish sign and likely to provide some support to the USD.
Yen focus stays on Fed and energy as BoJ seen on hold
Analysts at ING expect the Bank of Japan to leave policy unchanged on 31 July, and add that while some in the market see scope for “a faster tightening cycle and an October hike,” ING argues that “we doubt any modest hawkish shift will materially boost the yen or alter the USD/JPY outlook.”
Instead, ING stresses that “energy prices and the Fed reaction function look to be the bigger driver of USD/JPY over the coming months, rather than a potentially more hawkish BoJ. The experts expect Wednesday’s FOMC meeting to “have a big say here" and that "barring a surprisingly dovish Fed meeting, or a sudden drop in Brent back to $70/bl, we expect to stay bid near 163/164 into the BoJ meeting.”
ING also flags “an outside risk of USD/JPY making a run at 165 if Governor Ueda is insufficiently hawkish in his press conference.” They observe that the risk of FX intervention remains, although theu recall that "the BoJ spent $70bn in late April/early May and has remaining FX reserves of $1.09 trillion,” and that, “without doubt, Japanese authorities would prefer to sell USD/JPY into a falling market for greater effectiveness, but likely would be called into action should the 165 area be challenged.”
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
UOB strategists report that Oil prices initially fell sharply as the United States (US) military campaign against Iran remained paused, with WTI dropping to USD 79.26 and Brent to USD 84.10. However, West Texas Intermediate (WTI) later rebounded as much as 5% above USD 83 after fresh fighting and news of a US interception of an Iranian attempted surprise attack, underscoring heightened geopolitical-driven volatility.
Crude swings with Middle East risk
"The continued decline in oil prices amid signs of de-escalation in the Iran conflict has been a welcome development for markets, with attention now shifting to the July FOMC meeting."
"That said, oil rebounded this morning (with WTI rising as much as 5% to top US$83) as fresh fighting erupted as the US military said it successfully intercepted an Iranian “attempted surprise attack” on US troops based in the Middle East."
"The recent rebound in crude oil prices has led markets to price in a 35.8% probability of a 25bp rate hike at the July FOMC meeting."
"Oil prices fell sharply as the US military campaign against Iran remained paused, raising hopes that a resolution to the conflict could be reached in the near term."
"WTI crude declined 4.1% to USD 79.26 per barrel, its lowest level since July 16, while front-month Brent crude fell 4.8% to USD 84.10 per barrel."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
According to a senior official from Iran, the nation doesn’t support Oman's proposal for regional joint management of Strait of Hormuz, a critical chokepoint for almost 20% of global energy supply.
Additional remarks
The proposal has no chance of success.
Only Iran and Oman can decide on arrangements for the strait based on respective shares.
Iran rejects any role for other countries to be involved.
The entire inbound route and part of the outbound route through the strait must be under Iranian control.
Oman is a valuable neighbour but 50-50 joint control arrangement will not work.
The statement from Iran came in response to the delivery of Oman's Hormuz maintenance proposal on Tuesday. The proposal was based on Strait of Malacca, where those who use the strait voluntarily contribute to fund navigation, environmental protection, and search and rescue.
Market reaction
No immediate reaction was seen in the oil price following remarks from Iran on the regional Hormuz proposal. At press time, the WTI Oil price holds majority of early gains at around $81.00.
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.
- EUR/USD ticks up to near 1.1393 as the US Dollar edges down ahead of the Fed’s policy.
- The Fed is expected to leave interest rates unchanged for the fifth time in a row.
- Investors await the German and Eurozone inflation data for fresh cues regarding the ECB’s monetary policy outlook.
The Euro (EUR) ticks higher against the US Dollar (USD) at around 1.1393 during the European trading session on Wednesday. The major currency pair edges up as the US Dollar is slightly down ahead of the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT.
At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades marginally lower to near 101.30.
According to the CME FedWatch tool, traders see a 69.5% chance that the Fed will leave interest rates unchanged in the range of 3.50%-3.75%. This would be the fifth straight meeting when the Fed will maintain the status quo.
Investors will pay close attention to the monetary policy statement and Fed Chairman Kevin Warsh’s press conference to get cues regarding whether the central bank is leaning towards United States (US) President Donald Trump’s economic agenda.
On Monday, US President Trump urged Fed Chairman Kevin Warsh to lower interest rates, adding that there was a good inflation report recently, costs were falling rapidly, and that prices should drop significantly once the Gulf War ends.
On the Eurozone front, investors await the German and the Eurozone flash Harmonized Index of Consumer Prices (HICP) data for July, which will be released on Thursday and Friday, respectively.
According to estimates, the German headline HICP grew at a stronger pace of 2.8% Year-on-Year (YoY) from 2.4% in June. Strong German inflation growth would prompt European Central Bank (ECB) interest rate hike expectations.
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.
ING’s Chris Turner and Padhraic Garvey expect the Bank of Japan to keep its policy rate at 1.00% on 31 July, with any modestly hawkish shift seen as unlikely to materially boost the Yen or change the USD/JPY trajectory. They argue that energy prices and the Federal Reserve’s reaction function will dominate USD/JPY over coming months, with a year-end forecast at 158 assuming no further Fed hikes.
Fed and energy seen in control
"The Bank of Japan is expected to keep rates unchanged on 31 July after last month’s 25bp hike to 1.00%. While some see scope for a faster tightening cycle and an October hike, we doubt any modest hawkish shift will materially boost the yen or alter the USD/JPY outlook."
"Energy prices and the Fed reaction function look to be the bigger driver of USD/JPY over the coming months, rather than a potentially more hawkish BoJ. And Wednesday’s FOMC meeting will have a big say here. Barring a surprisingly dovish Fed meeting, or a sudden drop in Brent back to $70/bl, we expect to stay bid near 163/164 into the BoJ meeting."
"There is an outside risk of USD/JPY making a run at 165 if Governor Ueda is insufficiently hawkish in his press conference, but the risk of FX intervention remains. Here the BoJ spent $70bn in late April/early May and has remaining FX reserves of $1.09 trillion. Without doubt, Japanese authorities would prefer to sell USD/JPY into a falling market for greater effectiveness, but likely would be called into action should the 165 area be challenged."
"As to the longer-term outlook for USD/JPY, we have a year-end forecast at 158 on a baseline view that the Fed does not hike."
"There is also speculation that the Japanese government is looking at measures to support the yen by encouraging Japanese investors to keep more money at home."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/KRW approaches four-month lows at 1,438, set for a 6-5% monthly decline.
- Strong Korean data and a hawkish BoK are offsetting the negative impact of the stock market rout.
- The KOSPI Index has dropped about 35% so far in July amid a sharp correction in AI-related stocks.
The South Korean Won (KRW) extends gains for the second consecutive day against the US Dollar (USD), and is set for a 6.5% monthly rally. Strong South Korean macroeconomic data and market expectations of monetary tightening by the Bank of Korea have offset the KOSPI Index’s sell-off.
South Korean KOSPI dropped more than 12% during Wednesday’s session, following a 10% decline on Tuesday, which prompted authorities to halt trading for 20 minutes for the second consecutive day. The Index is 6.4% down at 5,638 at the time of writing, and about 35% down in July, as concerns about overinvestment in Artificial Intelligence (AI) have triggered a sharp correction in tech stocks.
Finance Minister Koo Yun-cheol has pledged new market stabilisation measures, including regulation related to single-stock leveraged ETFs, as experts raised their voices about the exacerbated market volatility caused by some financial products.
The KRW, however, is coping surprisingly well with the stocks' rout. South Korean Gross Domestic Product (GDP) beat expectations with a 0.6% growth in the second quarter while inflation surged to a 30-year high of 3.2% in June. In this context, the Governor of the Bank of Korea (BoK), Shin Hyun-song, has reaffirmed his commitment to further monetary tightening, which is underpinning the recent Won rally.
Semiconductor stocks FAQs
A semiconductor is a term for various types of computer chips. Officially called semiconductor devices, these computer chips rely on semiconductor materials like silicon and gallium arsenide to process the electrical current that produces the modern world of computing. They come in many shapes, sizes, enhancements and configurations such as diodes, transistors and integrated circuits to more complicated applications like DRAM memory, simple processors and even GPUs.
First, there are the pure chip designers, such as Nvidia, AMD, Broadcom and Qualcomm. These companies use sophisticated software to design and test chips. Second, there are the equipment manufacturers that provide the machines necessary to build computer chips. These include ASML and Lam Research. Then, there are foundries that manufacture the chips. These include Taiwan Semiconductor and GlobalFoundries. Last of all are the integrated device manufacturers who design their own chips and additionally manufacture themselves. These include Samsung and Intel.
It is the observation that the number of transistors in an integrated circuit doubles every two years. The “law” is named after Gordon Moore, who founded Fairchild Semiconductor and later Intel. The doubling is possible due to the shrinking size of process nodes or parts in the computer chip. In 1971 the advanced commercial manufacturing had reached 10 microns in width. In 1987 semiconductor technology had advanced to 800 nanometers in width. By 1999, this process had moved to 180 nanometers. By 2007, the size had dropped to 32 nanometers, and this fell all the way to 3 nanometers in 2022, which is close to the size of human DNA.
In 2022, the global semiconductor industry had revenues just under $600 billion. In total, the industry shipped 1.15 trillion semiconductor units in 2021. The leading nations involved in the semiconductor supply chain are Taiwan, the United States, China, the Netherlands, South Korea, Japan and Israel.
- The oil price rebounds strongly to near $81.00 after snapping a three-day losing streak.
- The US CENTCOM and Saudi Arabia jointly attacked Iran-aligned forces in Iraq.
- Investors expect the Fed to leave interest rates unchanged.
West Texas Intermediate (WTI), futures on NYMEX, trade 3.2% higher at around $81.00 during the early European trading session on Wednesday. The oil price bounces back strongly as joint attacks by the United States (US) Central Command (CENTCOM) and Saudi Arabia on Iran-backed military groups in Iraq have renewed fears of a prolonged global energy supply disruption.
Late Tuesday, the Saudi Ministry of Defence reported that it carried out targeted strikes against Iran-aligned armed groups in Iraq, in coordination with US CENTCOM, Al Jazeera reported. CENTCOM revealed that these attacks were in retaliation for planned attacks on US forces and Saudi oil facilities in the Eastern Province and Riyadh regions.
Meanwhile, subdued traffic near the Strait of Hormuz, a vital passage to almost 20% of global energy supply, indicates that the global energy supply will remain squeezed. Oil tankers fear using the Hormuz route as Iranian forces are attacking them as they pass through.
Earlier, the Iranian Islamic Revolutionary Guard Corps (IRGC) said that three oil tankers were 'struck and stopped' after ignoring warnings in the Hormuz.
Later in the day, investors will focus on the Federal Reserve’s (Fed) monetary policy decision. According to the CME FedWatch tool, traders see a 69.5% chance that the Fed will leave interest rates unchanged in the range of 3.50%-3.75%.
WTI technical analysis
WTI US Oil trades higher at around $80.93. The oil price strives to return above the 20-day Exponential Moving Average (EMA), which is at around $80.37.
The 14-day Relative Strength Index (RSI) near 51 points to neutral-to-positive momentum, hinting that the latest rebound could extend while price stays anchored above the short-term EMA.
On the downside, immediate support is defined by the July 28 low at $77.16, followed by the July 13 low at $72.53. Looking up, the odds of the oil price revisiting the 50-day high at $92.25 would strengthen once it extends its recovery above the July 27 high at $84.58.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
Commerzbank’s Antje Praefcke argues that the FOMC under Chair Kevin Warsh is likely to deliver a "hawkish hold", with markets already pricing at least one Fed rate hike by year-end. She highlights that recent declines in energy prices and a softer June inflation print reduce the odds of an immediate hike, limiting upside for the US Dollar and leaving EUR/USD sensitive to any scaling back of Fed tightening expectations.
Hawkish hold risk for Dollar
"In all likelihood, this overall situation should lead to a “hawkish hold” this evening. The market expects at least one interest rate hike from the Fed by the end of the year and sees a chance that more could follow next year as well. It does not want to completely rule out an interest rate hike even today, even though it sees only a low probability for this to happen."
"For EUR/USD today, the key question is whether these expectations will be fueled - or not."
"If the market scales back its expectations because the (possibly shorter than usual) FOMC statement or Warsh’s press conference suggests that the Fed views price risks as manageable and, above all, temporary, a correction in the USD is certainly possible."
"After all, it is unlikely that Warsh will adopt an extremely hawkish stance given the recent drop in energy prices and a surprisingly low June inflation rate."
"Consequently, upward pressure on the US dollar driven by rising expectations of interest rate hikes is also unlikely."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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