Daily Digest Market Movers: Japanese Yen continues losing ground amid divergent BoJ-Fed policy expectations
- The Japanese Yen continues to be weighed down by the Bank of Japan's dovish outlook, indicating that it is in no rush in terms of policy normalization, which, along with a bullish US Dollar, keeps the USD/JPY pair pinned near a 34-year peak.
- The incoming US data pointed to a still-resilient economy and sticky inflation, raising doubts over how aggressively the Federal Reserve will be able to cut interest rates this year and pushing the US Treasury bond yields to a five-month high.
- The US Census Bureau reported on Monday that Retail Sales rose 0.7% in March as compared to market expectations of a 0.3%increase and the previous month's reading was revised higher to show a growth of 0.9% vs. 0.6% reported originally.
- This, to a larger extent, helps offset the disappointing release of the Empire State Manufacturing Index, which improved less than expected to -14.3 in April from -20.9 and indicated continued weakness in the manufacturing business activity.
- The markets are now pricing in less than two interest rate cuts by the end of 2024 as compared to three projected by the Fed, which lifts the US Dollar to its highest level since November and continues to act as a tailwind for the USD/JPY pair.
- Japanese Finance Minister Shunichi Suzuki reiterated on Tuesday that he is closely watching FX moves and will take all possible measures, though refrained from commenting on whether the recent FX moves are too rapid or excessive.
- Japan's Chief Cabinet Secretary Yoshimasa Hayashi said that it is important for currencies to move in a stable manner, reflecting fundamentals and excessive FX volatility is undesirable, though it does little to provide any respite to the JPY bulls.
- Expectations that the Fed will keep rates higher for longer, along with the risk of a further escalation of conflicts in the Middle East, weigh on investors' sentiment and lend support to the safe-haven JPY, capping gains for the USD/JPY pair.
- Traders now look to the US macro data – Building Permits, Housing Starts and Industrial Production figures – and speeches by influential FOMC members, including Fed Chair Jerome Powell, for some meaningful impetus later this Tuesday.
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