This past week serves to remind us that central banks are in control of the market narrative. With the Fed and ECB each raising their respective policy rates 25 basis-points and markets keying off subtle changes to the text of ongoing policy, what are traders left to do? Market movements are constrained by the time remaining before the next official policy statement, and susceptible to interim guidance. We’ve become data-dependent, but only to the extent of how central banks translate the data for us.
Continuing with the central bank theme, the Bank of Japan announced overnight that its 0.5% ceiling on 10-year yields was now a reference point (no longer a rigid limit) in a new effort to make its monetary policy more flexible. The announcement was the catalyst for a 3-yen overnight range in USDJPY, a spectacular intraday move of 2.13%. USD/JPY found support at 138.00, revisiting a level reached earlier in the month.
The dollar is mixed against the majors today. The biggest gains are in the APAC pairs: 0.78% vs. AUD, 0.57% vs. JPY, 0.53% vs. NZD & TWD. Dollar losses are concentrated in the emerging market pairings: -1.20% vs. MXN, -0.93% vs. ZAR, and -0.53% vs. BRL.
The USD/MXN reached a fresh multi-year low today, touching 16.6300, last traded in December 2015. USD/MXN is set to close with its 7th consecutive monthly loss, a -2.51% drop during July and -14.33% for all of 2023. To find long-term support one must look back to the 2009-2013 high range near 15.0000.
PCE (Personal Consumption Expenditure deflator, Fed Chairman Powell’s preferred view on consumer inflation) data released today was remarkably in line with expectations. The Fed will simply have to raise rates again and keep the pressure on until the 2% inflation target is reached.
Equity indexes positive overnight, signaling a strong start at the open for the S&P 500 and Nasdaq indexes.