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GBP/USD steady as UK wage growth eases, GDP nextThe British pound has edged lower on Tuesday. In the North American session, GBP/USD is trading at 1.3055, down 0.14% on the day. UK wage growth eased in the three months to July, an encouraging sign for the Bank of England as it looks to continue lowering rates. Average earnings excluding bonuses climbed 5.1% y/y, down from 5.4% in the previous period and in line with the market estimate. This was the lowest level since June 2022. Wage growth is moving in the right direction but is still much too high for the BoE’s liking as it is incompatible with the target of keeping inflation at 2%. The UK labour market remains strong, as the unemployment rate edged down to 4.1%, down from 4%. The economy created 265 thousand jobs in the three months to July, up sharply from 97 thousand in the previous report and blowing past the market estimate of 115 thousand. The solid data means that the BoE isn’t under pressure to cut rates next week, and the markets are looking at another cut in November. The UK economy gets a report card on Wednesday, with the release of GDP for July. The economy flatlined in June and rose just 0.6% in the three months to June. Another weak GDP release could put pressure on the British pound. Investors will be keeping a close eye on Wednesday’s US inflation release. The Federal Reserve is now focused on employment now that inflation is between 2% and 3%, but a CPI surprise could shake up the markets and change market pricing for a Fed rate cut. The odds of a 50-basis point cut have been slashed to 29%, compared to 59% on Friday. There is resistance at 1.3167 and 1.3225 1.3069 and 1.3011 are providing support
by OANDA
Yen extends gains on solid wage growth, consumer spending nextThe Japanese yen has posted gains on Thursday. In the North American session, USD/JPY is trading at 143.27 at the time of writing, down 0.33% on the day. The yen continues to pummel the US dollar and is up 1.9% this week. Since July 1, the yen has surged a massive 10.7%. Average cash earnings in Japan rose 3.6% y/y in July, down from 4.5% in June, which was the highest since January 1997. Still, this beat the market estimate of 3.1%. Wages are a key factor as to how soon the Bank of Japan could raise interest rates. Inflation has been moving higher but the BoJ wants to see increased wage growth as well in order to achieve the Bank’s target of sustainable inflation at 2%. Japanese firms agreed to a huge wage increase of 5.1% for 2024 and this is being reflected in solid wage growth. Japan’s economy is showing signs of recovery and consumers are opening their wallets. Household spending will be released early Friday and is expected to rebound with a gain of 1.2% y/y in July, following a 1.4% decline in June. In the US, all eyes are on Friday’s employment report, specifically nonfarm payrolls. After a lower-than-expected gain of 114 thousand in July, the markets expect a gain of 160 thousand in August. The weak July numbers triggered a meltdown in the financial markets and investors remain uneasy. The Federal Reserve is poised to deliver a milestone rate cut on Sept. 18. The likelihood of a 25 bps cut stands at 61% and a 50 bps cut at 39%, according to CME’s FedWatch and these odds could change after the US employment report. USD/JPY has pushed below support at 143.57 and tested support at 142.91 earlier There is resistance at 144.10 and 144.76
by OANDA
British pound calm ahead of UK jobs reportThe British pound is drifting on Monday. GBP/USD is trading at 1.2768 early in the North American session, up 0.08% on the day. The UK releases the employment report for the three months to June and we could see signs of a cooling labour market. Annualized average earnings including bonuses, which has hovered between 5.5%-6% all year, is expected to fall sharply to 4.6%. The previous reading came in at 5.7%, the lowest since September 2022. The unemployment rate has remained unchanged at 4.4% for the past two readings, the highest since September 2021. Unemployment is expected to nudge up to 4.5% in the three months to June. This would signal that the labor market is weakening and would make If wage growth declines and the unemployment rate rises in tomorrow’s report, it would support the case for the Bank of England delivering another rate cut, perhaps as soon as next month. The BoE meets on September 19, just one day after the Federal Reserve is widely expected to cut rates by at least a quarter-point. The BoE joined the central bank trend of cutting rates earlier this month when it lowered rates by a quarter-point to 5%. We have entered a new phase of the central bank cycle, with most of the major central banks having already lowered rates. The Federal Reserve will almost certainly lower rates at the September meeting, but by how much? Just one month ago, the markets had priced in a quarter-point cut at 90%, according to the CME’s FedWatch, but then the US posted some weak numbers and the financial markets sank. This has boosted the likelihood of a half-point cut, which on Friday was around a 50/50 split with a quarter-point cut. Still, not everybody who has a say is urging a rate cut. Fed Governor Michelle Bowman, a voting member on the FOMC, said on Friday that she is hesitant about cutting rates, since inflation is “uncomfortably above” the 2% target and the labor market remains strong. GBP/USD is testing resistance at 1.2779. Above, there is resistance at 1.2801 1.2753 was tested in support earlier. The next support level is 1.2731
by OANDA
AUD/USD gains ground ahead of wage growthThe Australian dollar has posted gains on Tuesday. AUD/USD is up 0.19%, trading at 0.6620 in the North American session at the time of writing. Australia’s wage growth for the first quarter is expected to remain unchanged. Wages rose 4.2% in the fourth quarter of 2023, the highest since 2009, with most categories showing increases. On a quarterly basis, wage prices rose 1.9%, which was the lowest gain in three quarters. If the release is not within expectations, we could see a reaction from the Australian dollar. Is the Reserve Bank of Australia considering a rate cut? The central bank hasn’t shown any rush to shift policy and held rates at 4.35% for a fourth straight time at last week’s meeting. The RBA has stressed that rate policy will be data-dependent and has made the battle against inflation its top priority. A rate cut isn’t coming until inflation falls and the RBA doesn’t expect inflation to fall within the target range of 2-3% before 2025. Inflation has come down to 3.6% but the last phase of getting inflation within target could be the most difficult part, as the Federal Reserve has discovered. Unless inflation surprises with a sharp drop in the coming months, a rate cut is unlikely before November or early 2025. Federal Reserve Chair Powell speaks at an event in Amsterdam later today and the markets will be looking for hints regarding a rate cut. The Fed has delayed plans to cut rates as the US economy remains resilient and inflation has unexpectedly accelerated. The US releases April inflation data this week and a drop in inflation would increase the likelihood of a rate cut in September. The US releases PPI is expected to remain unchanged at 2.4% in April while CPI is projected to ease to 3.6%, down from 3.8% in April. AUD/USD tested support at 0.6602 earlier. Below, there is support at 0.6559 0.6645 and 0.6688 are the next resistance lines
by OANDA
USD/CAD dips as Canadian employment shinesThe Canadian dollar has climbed higher in the North American session after the release of Canada's December employment report. In the North American session, USD/CAD is trading at 1.3432, down 0.20%. Canada usually posts employment reports on the same Friday as the US, but had the stage all to itself today, as the US posted its job report last week. The news was good as employment jumped by 37,300 in January, smashing the market estimate of 15,000. The December reading was revised upwards to 12,300 from the initial estimate of just 0.1 thousand. The unemployment rate ticked lower to 5.7%, down from 5.8% in December and below the market estimate of 5.7%.  As well, average hourly earnings eased to 5.3% y/y in January, compared to 5.7% a month earlier. The Bank of Canada will be carefully monitoring the jobs data. Employment growth jumped, which points to a stronger labour market, but at the same time wage growth dropped. Wages are a key driver of inflation and today's decline will support the BoC continuing to pause and not cut rates until the middle of the year or later. The BoC is content to continue its "higher for longer" stance and let high rates continue pushing inflation lower. The central bank's top priority remains bringing down inflation to the 2% target, but businesses and consumers, especially homeowners, are groaning under the weight of elevated rates and are looking for some relief from the BoC. The Federal Reserve continues to push back against rate cut expectations in March. This week, a host of Fed members delivered the message that inflation is heading lower but the Fed remains cautious and isn't yet ready to lower rates, as the battle against inflation is not yet won. The markets have taken note of the Fed’s pushback and have pared expectations of a rate cut in March to 17%, down from over 70% in December, according to the CME’s Fed Watch tool. USD/CAD tested support at 1.3434 earlier. Below, there is support at 1.3392 1.3509 and 1.3551 are the next resistance lines
by OANDA
GBP/USD eyes UK wage growthThe British pound has started the week with slight losses. In the European session, GBP/USD is trading at 1.2725, down 0.21%. The UK will release employment data on Tuesday and the spotlight will be on wage growth. Over the past few months, wages have been falling and the Bank of England would like to see that trend continue as wages have been driving inflation. Average earnings including bonuses dropped to 7.2% in the three months to September, down from 7.7% in the previous release. The market estimate stands at 6.8% for the three months to October. The UK economy is in trouble, although there was some good news on Friday, as November GDP rebounded with a gain of 0.3% m/m after a 0.3% decline in October. Retail sales drove the gain as shoppers took advantage of Black Friday sales late in November. Still, the probability of a recession, which is defined as two consecutive quarters of negative growth, remains high. The economy declined by 0.1% in the third quarter and a fourth quarter of negative growth would mean that the economy is technically in a recession. Even if a recession is avoided, the economy has flatlined and isn't showing any growth. The lack of economic growth puts the Bank of England in a dilemma. The central bank has sharply raised interest rates in order to curb high inflation and significant progress has been made. A year ago, inflation was in double digits, galloping at a 10.1% clip. Inflation has fallen to 3.9%, which is still double the 2% target. Governor Bailey has pushed back against rate cuts and insisted that the BoE would maintain a 'higher for lower' rate path, but lowering rates would increase economic activity and lessen the likelihood of a recession. The BoE has maintained the cash rate at 5.25% three straight times and meets next on February 1. GBP/USD is testing support at 1.2721. Below, there is support at 1.2687 There is resistance at 1.2753 and 1.2787
by OANDA
Japanese yen takes a tumbleThe Japanese yen is down sharply on Wednesday. In the North American session, USD/JPY is trading at 145.74, up 0.86%. Japan's wage growth was a major disappointment in November, with a meager gain of 0.2%. This follows the October reading of 1.5% which was also the estimate. This marked the lowest gain since December 2021. The weak wage data will support the Bank of Japan in maintaining its ultra-loose policy. Governor Ueda has hinted at a shift in policy but has stressed that won't happen before inflation is sustainable at 2%, backed by higher wage growth. The BoJ is looking ahead to the annual wage negotiations in March. If workers win significant pay raises from employers, that could set the stage for the BOJ tightening interest rates in April. The US dollar has looked sharp early in 2024, despite the Fed pivoting sharply and signalling that it plans to raise rates this year. The dollar has surged 3.3% against the yen in January, after a 4.85% decline in December. Last week's nonfarm payroll report was stronger than expected, providing support for the Fed to maintain rates in restrictive territory until inflation falls closer to the 2% target. This 'higher for longer' stance was reiterated by Atlanta Fed President Bostic on Monday, who stated that he had a "natural bias to be tighter" and anticipated two rate cuts by the end of the year, with an initial one in the third quarter. This is a far cry from market expectations of up to six rate cuts this year, starting in March. USD/JPY has pushed above resistance at 144.93 and 145.37. Above, there is resistance at 146.13 There is support at 144.17 and 143.73
by OANDA
Australian dollar on a roller-coaster, US NFP loomsThe Australian dollar is trading quietly on Friday. In the European session, AUD/USD is trading at 0.6611, up 0.14%. It has been a roller-coaster week for the Australian dollar. After declining 1.88% early in the week, the Aussie rebounded on Thursday and gained 0.80%. Today's US nonfarm payrolls report could result in further volatility from the Australian dollar in today's North American session. All eyes are on the US nonfarm payroll release later today. After falling sharply in October to 150,000 from a revised 297,000, nonfarm payrolls are expected to rebound to 180,000. If nonfarm payrolls are weaker than expected, speculation of a Fed rate cut will rise, while a hot report would undermine market confidence that a rate hike isn't too far away. Outside the headline data, average hourly earnings will be closely watched, as wage growth is a key driver of inflation. The consensus estimate for average hourly earnings in November stands at 0.3% m/m, compared to 0.2% in October. A higher-than-expected reading could generate a market reaction and give the US dollar a lift. Australia's largest trading partner is China and the slowdown in the world's second-largest economy will likely dampen Australia's economy. China's economic woes were reflected in this week's Australian GDP, which posted a weak 0.2% gain for the third quarter, compared to the 0.4% gain in Q2. Notably, exports dropped for the first time since Q1 2022. China's economic slowdown has resulted in disinflationary pressures. Chinese CPI decreased 0.1% in October and another 0.1% decline is expected in the November release on Saturday. If China's economy continues to weaken, demand for Australian exports could fall even further and that could weigh on the Australian dollar. AUD/USD is testing resistance at 0.6603. Above, there is resistance at 0.6639 0.6530 and 0.6494 are providing support
by OANDA
AUD/USD soars on US inflation, Aussie employment nextThe Australian dollar is unchanged on Wednesday, after massive gains a day earlier. In the European session, AUD/USD is trading at 0.6505. Australian wage growth climbed 1.3% q/q in the third quarter, matching the consensus estimate and above an upwardly revised 0.9% gain in Q2. This was the highest gain since records started in 1997, but the spike was largely due to an increase in minimum wage and a pay rise for elderly care workers. The unusual confluence of factors behind the strong wage growth print meant that it had little effect on market pricing of a rate hike. The markets have priced in a pause above 90% at the Reserve Bank of Australia's next meeting on December 5th. The RBA raised rates earlier this month after four straight pauses but the hike was considered dovish by the markets and the Australian dollar took a tumble following the decision. Australia releases employment data on Thursday, with the labour market continuing to show resilience. The economy is expected to have added 20,000 jobs in October, compared to 6,700 in September. The RBA will be keeping a close eye on consumer inflation expectations, which is expected to fall in October from 4.8% to 4.1%. The US inflation report was only a bit lower than expected, but the US dollar was pummelled on Tuesday with sharp losses against the major currencies. The Australian dollar soared, gaining 2% against the greenback. Monthly, headline inflation was unchanged in October for the first time in 15 months, with lower gasoline prices helping to push inflation lower. On an annual basis, headline inflation fell from 3.7% to 3.2%, below the market consensus of 3.3%. Core inflation inched lower to 4.0%, down from the September reading of 4.1% which was also the market consensus. AUD/USD is putting pressure on resistance at 0.6526. Above, there is resistance at 0.6592 0.6476 and 0.6408 are providing support
by OANDA
USD/CAD steady ahead of Canada, US job reportsThe Canadian dollar is showing little movement on Friday. In the European session, USD/CAD is trading at 1.3740, up 0.03%. The week wraps up with US and Canadian employment reports, which could mean volatility from the Canadian dollar during the North American session. The US releases nonfarm payrolls, which had a massive September and crushed expectations with a gain of 336,000. The markets are projecting a modest gain for October, with a market consensus of 170,000. The ADP Employment Change report, which isn’t considered a reliable gauge for nonfarm payrolls but is still closely watched, posted a weak gain of 113,000 in October, well below the market consensus of 150,000 and following the September reading of 89,000. Will nonfarm payrolls follow suit or will we see another hot release? The US dollar has declined against the majors since the Federal Reserve's decision to maintain interest rates for a second straight time. Fed Chair Powell tried to sound hawkish and reiterated that rate hikes remain on the table, but the markets are in a dovish mood and believe that rates may have peaked. If the nonfarm employment release follows ADP and misses expectations, it would likely mean the end of the current tightening cycle and I would expect the US dollar to decline after the release. Conversely, a strong non-farm payrolls report would support the Fed's stance that rate hikes remain on the table and would likely translate into strong gains for the US dollar following the release. The Fed will also be keeping an eye on wage growth, a driver of inflation. Wages rose 0.2% m/m in September and the market estimate for October stands at 0.3%. On an annualized basis, wage growth is expected to ease to 4.0% in October, down from 4.2% in September. Canada's employment is projected to ease to 22,500 in October, compared to 63,800 in September, which marked an eight-month high. The labour market has remained strong despite the Bank of Canada's aggressive tightening, and a weak employment reading would boost the case for another pause from the BoC and could weigh on the Canadian dollar. 1.3730 is a weak support level. Below, there is support at 1.3660 There is resistance at 1.3805 and 1.3950
by OANDA
USD/CAD - Canadian dollar stops nasty slideThe Canadian dollar has steadied on Thursday. In the North American session, USD/CAD is trading at 1.3728, down 0.12%. The Canadian currency has stabilized after a nasty four-day slide, in which it declined 1.9%. The US dollar continues to look strong against the majors, as "US exceptionalism" continues to make the greenback attractive to investors. The Canadian dollar is also getting squeezed by falling oil prices, as oil is a major export for Canada. Crude oil prices slid around $5 on Wednesday, its biggest daily drop in over a year, and fell further on Thursday before recovering. The rise in bond yields, which have raised fears of a global economic slowdown are weighing on investor sentiment towards oil. On the economic calendar, the Canada Ivey PMI eased slightly in September to 53.1, down from 53.5 in August, but easily beat the market consensus of 50.8. The PMI has indicated expansion in economic activity in eight out of the past nine readings. As well, the job creation component rose from 58.5 to 54.8 in August, marking a six-month high. These are encouraging figures for the Canadian economy, which has run into some headwinds, such as a flatlined GDP in August. Canada's economy contracted in the second quarter, and a repeat in Q3 would indicate a technical recession. The Canadian dollar could show some volatility on Friday, with the US and Canada both releasing employment reports for September. Canada is expected to have added 20,000 jobs in September, which would be half of the gain in August of 39,900. The Bank of Canada will be keeping a close eye on wage growth, which is projected to rise to 5.5% y/y, compared to 5.2% in August. All eyes will be on the US nonfarm payrolls, which is showing signs of cracks, with three straight releases below the 200,000 mark. The August release came in at 187,000 and the consensus estimate for September stands at 170,000. Wage growth is expected to tick up to 0.3%, compared to 0.2% in August.  An unexpected reading in the NFP or wage growth reports could have a significant effect on the US dollar on Friday. USD/CAD faces resistance at 1.3806 and 1.3864 1.3695 and 1.3638 are the next support lines
by fisherkj4
GBP/USD rises ahead of UK retail salesThe British pound has extended its gains on Thursday. In the North American session, GBP/USD is trading at 1.2772, up 0.32%. The UK will wrap up a busy week with retail sales on Friday. The July report is expected to show a decline in consumer spending. Headline retail sales are expected to fall by 0.5% after a 0.7% gain in May and core retail sales are projected to decline by 0.7% after a 0.8% increase in May. The June numbers were higher than expected despite high inflation, helped by record-hot weather. Will the July data also surprise to the upside? The UK consumer has been grappling with the highest inflation in the G7 club, which means shoppers are getting less for their money. This has dampened consumption, a key driver of the economy. Energy prices are lower, thanks to the energy price cap, but food inflation continues to soar and was 17.4% y/y in June. Consumer confidence has been mired deep in negative territory and the GfK consumer confidence index, which will be released later today, is expected at -29, almost unchanged from the previous release of -30 points. The Bank of England would like to follow some of the other major central banks that are in a pause phase, but the grim inflation picture may force the BoE to keep raising interest rates, which could tip the weak economy into a recession. Wage growth jumped to 7.8% in the three months to June, up from 7.5% in the previous period. In July, headline CPI fell to 6.9%, down sharply from 7.9%, but core CPI remains sticky, and was unchanged at 6.9%. The data points to a wage-price spiral which could impede the BoE's efforts to curb inflation. The Federal Reserve remains concerned about high inflation and said that additional rate hikes might be needed, according to the minutes of the July meeting. At the meeting, the Fed raised rates by 0.25%, a move that was widely anticipated. Most members "continued to see significant upside risks to inflation, which could require further tightening of monetary policy". At the same, time, members expressed uncertainty over the future rate path since there were signs that inflationary pressures could be easing. GBP/USD is testing resistance at 1.2787. The next resistance line is 1.2879  1.2726 and 1.2634 are providing support
by OANDA
GBP/USD shrugs off mixed employment reportThe British pound has edged higher on Tuesday. In the European session, GBP/USD is trading at 1.2697, up 0.08%. Investors were treated to a mixed UK employment report today. The labour market, which has been surprisingly resilient in the face of the Bank of England's tightening, is showing unmistakable signs of cooling. Employment fell by 66,000 in the three months to June, a huge reversal from the 102,000 gain in the previous period. The consensus estimate stood at 75,000. Notably, this was the first decline in job growth since August 2022. The unemployment rate rose from 4.0% to 4.2%, above the estimate of 4.0%, and unemployment claims rose to 29,000, up from 16,200 and above the estimate of -7,300. The one exception to the soft jobs report, but a critical one, was wage growth. Average earnings excluding bonuses rose 7.8% y/y in the three months to June, up from 7.5% and above the estimate of 7.3%. This was the highest level since records began in 2001. Average earnings including bonuses jumped 8.2%, compared to an upwardly revised 7.2% previously and above the estimate of 7.3%. The jump in wage growth will be unwelcome news for the Bank of England, as it indicates that the dreaded wage-price spiral continues to feed inflation. Higher wages are a key driver of inflation, and the BoE has warned that if wage growth doesn't ease, it will be forced to raise rates even higher. This could mean that the weak UK economy will tip into a recession, but the BoE considers that the lesser evil compared to high inflation. The BoE meets on September 21st and I do not envy Governor Bailey, who may have to cause more financial pain and raise rates. The UK releases the July inflation report on Wednesday, with CPI expected to fall to 6.7%, down from 7.9%. That would be a significant decline but it would still leave inflation more than triple the BoE's target of 2%. The BoE and investors will be glued to the inflation report and I expect the British pound to have a busier day. GBP/USD is testing resistance at 1.2726. The next resistance line is 1.2787  1.2634 and 1.2573 are providing support
Long
by OANDA
GBP/USD steady ahead of jobs dataThe British pound is quiet at the start of the week. In the European session, GBP/USD is trading at 1.2701, up 0.05%. The UK releases key employment numbers on Tuesday and the data is expected to show that the UK labour market remains tight. The economy is expected to have created 50,000 jobs in the three months to June. That number is down from 125,000 previously, but unemployment claims are expected to drop by 7,300, down from a gain of 25,700 previously. Most importantly, wage growth including bonuses is expected to jump to 7.3% in the three months to May, compared to 6.9% in the previous three months. A jump in wage growth will not be welcome news for the Bank of England, which has had limited success in its battle to rein in inflation. Wage growth has been elevated due to high inflation and the tight labour market and an acceleration in wages will support a rate hike at the September meeting. The BoE has raised rates to 5.25%, but inflation has fallen more slowly than expected and is currently at 7.9%, the worst in the G-7. Over in the US, the markets are widely expecting the Fed to pause at the September 20th meeting. That will allow the markets to focus on key releases and try to determine if the economy is too strong, which could mean further rate hikes late in the year. Retail sales, which will be released on Tuesday, will provide a snapshot of whether consumers are still spending despite inflation and rising interest rates. Both the headline and core rates are expected to rise by 0.4% in July after a 0.2% gain in June. GBP/USD is putting pressure on resistance at 1.2726. The next resistance line is 1.2787  1.2634 and 1.2573 are providing support
by OANDA
Bank of Japan sitting on the fence on easy policy exitCentral banks packed quite a punch last week. Unlike the Federal Reserve and the European Central Bank that raised policy rates by 25Bps, as was widely anticipated, the Bank of Japan (BOJ) on July 28 unexpectedly decided to tweak the Yield Curve Control (YCC) band. The BOJ begins its withdrawal from YCC It will now allow some deviation above the long-term rate cap of 0.5% and has raised the rate for its 10yr Japanese Government Bond (JGB) fixed-rate purchase operations to 1%. They are effectively doubling their YCC band as it has outlived its purpose over the last seven years. This is despite Governor Kazuo Ueda stressing the BOJs patience a week prior to the meeting leading to 82% of the economists surveyed by Bloomberg expecting no change. There is a strong likelihood the decision was made because the market was least expecting it, similar to the last YCC policy tweak made in December 2022. As it helps avoid the inevitable speculation about the impact of the change on the JGB curve thereby forcing the BOJ to step up its interventions. It’s hard to determine whether the new YCC with greater flexibility and nimble responses in its purchase schedule will achieve the BOJs goal of sustainable and stable achievement of the 2% inflation target. Longer dated JGB yields are likely to stay under upward pressure until clearer signs emerge that Japanese inflation and wage pressure are easing again. Core inflation at highest level since 1982 The deflationary headwinds confronting Japan have been around for decades. Signs of change have been seen in firms’ wage- and price-setting behaviour, and inflation expectations have shown some upward movements again (as seen in the chart above). Spring in Japan is the season for shunto, the annual wage negotiations between company management and unions. This year some firms have already announced significant wage hikes in response to a tightening labour market and rising inflation. May wages rose by 2.9%1. However, a large part of the increase was tied to bonuses. Real wages fell by less but continued to decline by 0.9%2. Japanese headline inflation stayed at 3.2% year on year in July for three consecutive months3. However, core inflation excluding fresh food and energy, reaccelerated to 4.2%, marking the highest level since April 1982. Looking ahead, headline inflation will likely slow owing to falling global commodity prices and base effects but core inflation will likely remain higher owing to structural change in the labour market. BOJ struck a dovish tone with below target inflation forecasts The BOJ’s inflation forecasts for the fiscal years ahead are expected to slow further. The BoJ lowered its (median) forecast for FY2024 to +1.9%4 and left its FY2025 projection unchanged at +1.6%3, in effect justifying ongoing easing from the Bank of Japan. BoJ Governor Ueda mentioned at the press conference that there is still some distance to foresee 2% price stability target in a stable and sustainable manner given our inflation outlook for FY2024 and FY2025. This echoes a dovish narrative on the new YCC regime and a continued communication that the BOJ intends to in effect ease policy by still increasing the monetary base via fixed operations. More volatility beckons for risk assets The initial response to the BOJs surprise decision was a sharp rise in Japanese bond yields. Japan’s benchmark bond yields surged, extending gains above the central bank’s previous 0.5% cap. The yen whipsawed, falling more than 1% before reversing course and rallying to trade about the same amount higher. On Monday 31st July, the BOJ sprung another surprise announcement (2 days post the BOJ meeting) of an unscheduled bond-purchase operation to stem the rise in yields5. The BOJ intends to purchase ¥300Bn of five-to-10-year notes at market yields. This serves as an important reminder that the flexibility is intertwined with opaqueness, as the BOJ can intervene at any time (between 0.5% to 1%) which will continue to stoke volatility across risk assets. The BOJ has positioned the YCC as enhancing sustainability of its current accommodative policy. With Japan’s monetary environment likely to be kept relatively loose, the yen is likely to trade in a volatile range for the remainder of 2023. Sources 1 Bloomberg as of 31 May 2023 2 Bloomberg 31 May 2023 3 Ministry of Internal Affairs and Communication as of 20 July 2023 4 Bank of Japan as of 28 July 2023 5 Bloomberg as of 31 July 2023 This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
FRED:NIKKEI225
by aneekaguptaWTE
New Zealand dollar sinks after soft jobs reportThe New Zealand dollar has extended its losses on Wednesday. In the European session, NZD/USD is trading at 0.6093, down 0.91%. Earlier, NZD/USD touched a low of 0.6091, its lowest level since June 30th. The New Zealand labour market has been tight, despite aggressive tightening by the Reserve Bank of New Zealand. Wednesday's employment report for the second quarter showed some softening, which has extended the New Zealand dollar's losses. The unemployment rate rose to 3.6%, up from 3.4% in the first quarter and above the consensus estimate of 3.5%. Wage growth eased to 4.3%, below the 4.5% reading in Q1 and the estimate of 4.4%. These numbers point to a weaker labour market, but Employment Change rose 1.0%, up from 0.8% in Q1 and above the estimate of 0.5%. The mixed numbers show that the labour market may have lost a step but still remains strong enough to bear further rate hikes from the RBNZ. In July, the central bank maintained the cash rate at 5.50% and meets next on August 16th. China released July PMIs this week, and the soft readings are weighing on the New Zealand dollar. China is New Zealand's largest trading partner and the New Zealand dollar is sensitive to Chinese economic releases. We'll get a look at the Caixin Services PMI on Thursday. The consensus estimate stands at 52.5, following a June reading of 53.9. A reading above 50.0 points to expansion. In the US, the ADP Employment report kicked off a host of job releases, highlighted by nonfarm payrolls on Friday. ADP impressed with a gain of 327,000 for July, below the June reading of 455,000 but blowing past the consensus estimate of 189,000. A month ago, ADP came in at 497,000, fuelling speculation that nonfarm payrolls might follow suit with a strong release. In the end, nonfarm payrolls fell significantly, as expected. Will the NFP follow ADP's lead and crush the estimate? NZD/USD is testing support at 0.6093. Below, there is support at 0.6031 0.6184 and 0.6246 are the next resistance lines
by OANDA
USD/CAD slips after BoC rate hikeThe Canadian dollar has posted strong gains in Wednesday's North American session. In the North American session, USD/CAD is trading at 1.3146, down 0.63%. On the economic calendar, it has been a busy day, with the Bank of Canada raising interest rates and US inflation falling lower than expected. The Bank of Canada raised rates by 0.25% on Wednesday, bringing the cash rate to 5.0%. The BoC has delivered 475 basis points in hikes since March 2022 and the aggressive tightening has sent inflation lower. Still, the BoC's rate statement noted that it remains concerned that progress towards the 2% target could stall and that it does not expect to hit the target before mid-2025. This can be considered a hawkish hike and the Canadian dollar has responded with strong gains on Wednesday. Wednesday's US inflation report should please the Federal Reserve, which has circled high inflation has enemy number one. The June release showed headline inflation falling to 3.0%, down from 4.0% in May. This beat the consensus estimate of 3.1% and was the lowest level since March 2021. Even more importantly, the core rate fell from 5.3% to 4.8%, below the consensus estimate of 5.0%. On a monthly basis, both the headline and core rate came in at 0.2%, below the consensus estimate. The inflation release was excellent news, but isn't expected to change the Fed's plans to raise rates at the July 27th meeting. The inflation data didn't change market pricing for the July meeting (92% chance of a hike), but did raise the chances of a September hike from 72% prior to the inflation release to 80% after the release. Although the jobs report on Friday showed nonfarm payrolls declining considerably, wage growth was higher than expected and likely convinced the Fed to raise rates at the July meeting before taking a pause. There is resistance at 1.3191 and 1.3289 1.3105 and 1.3049 are providing support
by OANDA
Virulent inflation raises pressure on the Bank of EnglandThe inflation battle is far from over in the UK. In fact, the nature of inflation is taking a new form as the root cause moves away from external to more domestically driven shocks. While the headline rate remained unchanged at 8.7%yoy in May, core inflation accelerated to 7.1% in May from 6.8% in April, marking the highest rate since March of 19922. In response the Bank of England (BOE) raised interest rates by a bumper 50Bps to a 15-year high. While the Federal Reserve (Fed) and the European Central Bank (ECB) have made progress on bringing down inflation, the BOE still has some ways to go. Current market pricing assumes the terminal policy rate will go to 6% by year end3. UK inflation proving to be virulent The UK has the most severe entrenched inflation problem across developed markets. The domestically driven increase of services prices advanced from 6.9% to 7.4%yoy in May4. As services are labour intensive, they are being impacted by strong wage gains. Employment growth has been stronger than projected underscoring continued robust demand for labour. This high demand caused the rise in weekly average earnings (ex-bonus) to 7.5% in April5, well above the BOE’s forecast. Brexit has been partly responsible for the rise in wages. Brexit reduced the mobility of European workers. The resulting lack of non-qualified workers has not yet been reabsorbed. The situation was clearly exacerbated during the Covid pandemic that left a large part of the workforce sick. The shortage of workers in the UK continues to weigh on the supply side and has been the key reason inflation has remained stubbornly high. The resilient gains in employment (up 1.2% in April 20236) have allowed UK households to continue spending on services. Thereby contributing to higher services inflation, prices for recreational and cultural goods and services rose by 6.8%yoy in May 20237. At the same time, due to the shift away from floating rate mortgages towards fixed rate products over the last decade, the pass through of higher rates is taking longer to feed through the economy, thereby enabling the consumer to appear more resilient. However, headwinds are appearing from higher mortgage rates, with at least 800,000 fixed mortgages due to move on to significantly higher rates in H2 20238. Rents have also been rising, at an annualised pace of 5.6% in May compared to 3.2% in 20229. This is likely to place further pressure on real disposable incomes and simultaneously fuel core inflation higher. The Institute for Fiscal Studies estimates that higher interest rates will cause the average mortgage holder to suffer an 8.3% fall in disposable income compared to a scenario where rates remained at March 2022 levels. For 1.4 million of those borrowers, disposable income will fall by more than 20%10. BOE guided dovish The BOE’s guidance implied that no further rate hikes should be needed bar evidence of more persistent inflationary pressures however the market ignored this. Money markets priced a terminal rate of 6.25% by February 202411. The BoE did not rule out further rate increases should the inflation data continue to be unfavourable. However, they did downplay the unexpected surge in core inflation in May owing to special contributing factors such as the sharp rise in vehicle excise duty and the erratic contribution of airfares and holiday packages. The BOE also highlighted that forward looking indicators are pointing to material falls in future wage inflation which could then lower the pressure on services prices. We share that view, as producer price inflation which tends to serve as a leading indicator for consumer price inflation, eased more than expected in May. The June composite Purchasing Managers Indices (PMI) dropped for a second month in June, showing price pressures easing across the board, suggesting the economy could be turning. Sterling Positive rate surprises are not always positive for the currency. The Pounds muted response (-0.17%)12 to the BOE meeting despite the hawkish surprise and its negative reaction (-0.21%)13 to the hawkish May inflation data suggest that the BOE is prepared to endure a deeper slowdown in order to bring inflation under control. As a growth sensitive currency this is likely to remain an important headwind for the Pound. Sources 1 Bloomberg as of 23 June 2023 2 Bank of England as of 22 June 2023 3 Bloomberg, as of 23 June 2023 4 Bank of England as of 21 June 2023 5 Office for National Statistics as of 31 May 2023 6 Office for National Statistics as of 31 May 2023 7 Bank of England as of 22 June 2023 8 Source: Bank of England, Bloomberg as of 22 June 2023 9 Office for National Statistics, as of 22 June 2023 10 Institute for Fiscal Studies as of 30 April 2023 11 Bloomberg as of 23 June 2023 12 Bloomberg GBP/USD as on 22 June 2023 13 Bloomberg GBP/USD as on 20 June 2023
ECONOMICS:GBINTR
by aneekaguptaWTE
GBP/USD calm after mixed UK jobs report, US retail salesAfter three straight days of sharp movement, the pound has settled down on Tuesday and is slightly lower, trading at 1.2496. Is the UK labour market showing signs of strain? Today's employment numbers are pointing in that direction. The unemployment rate rose to 3.9%, up from 3.8% which was also the estimate. Unemployment claims rose by 46,700, up from 26,500 and crushing the estimate of -10,800. At the same time, wage growth remains strong. Average Earnings excluding bonuses accelerated to 6.7%, up from 6.6% but shy of the 6.8% estimate. The uptick in wage growth will no doubt concern the Bank of England since it complicates its battle to curb inflation, which is galloping at a 10.1% clip. If the BoE can get a handle on sizzling inflation and if the labour market continues to cool down, that should translate into lower wage growth. The British pound is slightly lower on expectations that the BoE may pause its tightening shortly - the markets have priced in just one more rate increase this year. Federal Reserve members continue to send out a hawkish message to the markets, even though the Fed is expected to pause rates at the June meeting. Richmond Fed President Tom Barkin had a hawkish message for the markets on Monday, saying he saw "no barrier" if high inflation persisted. Barkin said that demand was easing but not fast enough for inflation to fall to the 2% target. As for the job market, Barkin said it had moved from "red hot to hot" and there were some signs of the labour market easing. Atlanta Fed President Raphael Bostic poured cold water on rate cuts this year and warned that rates could go up, given the persistence of inflation pressures. GBP/USD is testing support at 1.2524. The next support line is 1.2369 1.2604 and 1.2676 are the next resistance levels
by OANDA
GBP/USD ends slide, employment report nextGDP/USD has started the week in positive territory, after a two-day slide that saw the pound lose 1.5%. In the North American session, GBP/USD is trading at 1.2514, up 0.54%. On the economic calendar, it's a fairly quiet start to the week. There are no releases out of the UK. In the US, the Empire State Manufacturing Index slid to -31.8, versus 10.8 prior and an estimate of -2.5 points. This was the lowest level in three years and pointed to a sharp contraction. Orders and inventories fell sharply, and the report was another indication of the sorry state of the manufacturing sector. The US releases retail sales on Tuesday, with the markets expecting an improvement in the April data. The headline reading is expected to improve to 0.7%, up from -0.6%, and the core rate is projected to rise to 0.4%, up from -0.4%. If the data is within expectations, it would indicate that consumers are still spending, despite a drop in consumer confidence. Friday's GDP release pointed to a UK economy in trouble. March GDP came in at -0.3%, and Q1 growth posted a meagre gain of 0.1%. The economy might manage to avoid a recession, but the BoE is projecting practically zero growth in 2023. The labour market has remained robust in the UK, despite the weak economy and the bite of rising interest rates. However, cracks are appearing - unemployment claims rose by 28,200 in April, and are expected to rise by 31,200 in the April report, which will be released on Tuesday. The Bank of England will be keeping a close eye on wage growth, a driver of inflation. The estimate for average earnings including bonuses for January-March stands at 5.8%, versus 5.9% in the previous release. GBP/USD is putting pressure on resistance at 1.2524. The next resistance line is 1.2604 1.2369 and 1.2289 are the next support levels
by OANDA
USD/JPY shrugs after Japanese wages, household spending falterUSD/JPY is almost unchanged today, trading at 135.18. Japan's households are again holding tightly to the purse strings, as household spending fell 1.9% y/y in March, following a 1.6% gain in February. The consensus estimate stood at 0.4%. Household spending has been in a slump, with only one gain in the past five readings. There was no relief from wage data, as real wages declined in March for a twelfth straight month, at -2.9%. Nominal pay growth rose 0.8% y/y in March, but this fell well short of the CPI rate of 3.8% used to calculate real wages. In March, large companies negotiated substantial wage hikes, but so far this has not translated into higher wage growth, which could prod new Governor Ueda to normalize policy. Investors are hoping for some insights into Ueda's plans, with the release of the BoJ Summary of  Opinions on Wednesday. The summary covers the BoJ's April meeting, the first to be chaired by Ueda. At the meeting, the BoJ removed guidance on rate levels and said it would conduct a review of its policies. The Federal Reserve has warned that the turmoil in the banking sector has led to tighter credit conditions which could slow down growth in the US economy. These concerns were highlighted in the Fed's bi-annual financial stability report. The Fed's quarterly Senior Loan Officer Opinion Survey echoed these worries, with bank officials saying that they would tighten lending requirements and expressing concerns about a recession and deposit withdrawals. The financial stability report tried to put on a positive spin, stating, that "a large majority of banks" were able to handle the strain from higher rates and that US  banks were "well capitalised". Still, the Fed will have to keep in mind the danger of contagion and give thought to cutting rates later in the year in order to minimize the chances of a recession. USD/JPY is putting pressure on resistance at 135.37. Above, the next resistance line is 137.24 There is support at 134.50 and 132.97
by OANDA
GBP/USD edges higher as UK inflation higher than expectedUK inflation remains hot and stubbornly high. In March, headline CPI dropped to 10.1%, down from 10.4% but above the consensus estimate of 9.8%. Inflation is still stuck in double digits, but the silver lining is that inflation has resumed its downswing after unexpectedly rising in February from 10.4% to 10.1%. The core rate remained unchanged at 6.2%, above the estimate of 6.0%. The usual suspects were at play in the headline release, as food and energy costs continue to drive inflationary pressures. It hasn't been the best of weeks for the Bank of England. The employment report showed that wage growth remains high and inflation is galloping at a double-digit pace. The BoE has raised rates to 4.25%, but the battle against inflation has been difficult, and it's unclear if inflation has even peaked. The latest wage and inflation numbers have likely cemented another rate hike at the May meeting, but that's not good news for a struggling economy. GDP in February was flat, as widespread strikes and the cost-of-living crisis dampened economic activity. Consumers are struggling with higher taxes, hot inflation and rising interest rates. Inflation remains the central bank's number one priority and a pause in rates will isn't likely until the tight labour market, which is causing higher wage growth, cools down. In the US, there are no tier-1 events on the calendar. Investors will be focussing on Fedspeak, with Fed members Williams, Goolsbee and Mann making public statements. Earlier this week, Williams said that he expects inflation to continue falling and to reach 3.75% by the end of this year and hit the 2% target by 2025. GBP/USD is testing resistance at 1.2436. The next resistance line is 1.2526 There is support at 1.2325 and 1.2235
by OANDA