The greenback loses for the first time in five sessions and the Yen advances against major peers after Bank of Japan Governor Kazuo Ueda said that negative interest rates are possible if inflation and wages keep increasing. USD/JPY is down 1.18% trading near 146. EUR/USD edges higher to remain above 1.07 while GBP/USD trades near 1.25. AUD/USD comfortably trades above 0.64 and the Bloomberg Dollar Spot Index is down 0.4%.
It is the start of a busy week in Europe, where the European Central Bank is on a knife-edge situation on whether to hike interest rates further or pause. A 25-basis point rate increase is estimated, and it could be the last one of the current hiking cycle, lifting the ECB’s benchmark rate to 4.0%. One day before the ECB’s decision, we will be provided with Euro-Area Industrial production data MoM where consensus stands at a 0.7% decline.
In the UK, unemployment data and Average Weekly earnings excluding Bonus (Tue.) will be closely watched by the Bank of England as well as UK Monthly GDP (Wed.) as the central bank currently discusses how far they can take interest rates in the current cycle. The BOE is expected to hike by another 25 basis points at its 21 September meeting.
As we enter the blackout period ahead of the FOMC meeting on the 19-20 Sep, Fed officials have signalled that they will hold interest rates for this month. This policy decision seems to be consistent and has a broad support, even from hawks such as Fed Governor Waller and Dallas Fed President Lorie Logan. In contrast to June, the median Federal Reserve policy maker no longer sees a need for another rate hike.
Markets keep pricing a 42% rate hike chance for November and these odds may rise depending on the August’s CPI print (Wed.) where energy prices are expected to push up the headline print, but the Fed might move its focus to soft core CPI data. Core CPI data is estimated to rise 0.2% for a third consecutive month, becoming strong evidence on the need to pause interest rate hikes.
Have a good week.