The Japanese Yen (JPY) Weakened, The Aussie Pair Is Trading Above 0.70$
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Today the US releases data on retail sales and PMI indices, which are supposed to show support for inflation fading.
USD/JPY
At the two-day meeting, the BOJ unanimously maintained its YCC targets, set at -0.1% for short-term interest rates and around 0% for 10-year yields.
The Japanese yen weakened by more than 2 percent in the wake of the Bank of Japan's monetary policy announcement in January. If the losses continue, this will be the best one-day performance for the USD/JPY pair.
To understand why the yen weakened so quickly here, one has to go back to what happened in December. Last month, the central bank shocked the markets by widening the yield curve band around 0% to plus/minus 50 basis points. It was from +/- 25 bp. The central bank also increased asset purchases to 9 trillion yen each month from 7.3 trillion previously. The markets saw this as a move by the central bank towards normalizing policy. Therefore, investors were strongly focused on further corrections today. When this did not happen, these bets were voided.
The USD/JPY pair strengthened and traded above 131. After this recovery, the pair began to fall to a level around 129.10.
AUD/USD
The Australian and New Zealand dollars gained on Wednesday on the retreating yen. The Australian jumped 2.0% to 91.36 yen.
For now, the BJ's pledge to keep yields low has provided relief to global bond markets and the Australian 10-year yield fell 8 basis points to 3.57%.
The main event of the week in the country will be data from the Australian labor market, which will be released on Thursday.
The Austrailan pair (AUD/USD) has broken through the 0.70 level and is trading at 0.7020 at the time of writing
GBP/USD
The British pound received support this morning after mixed inflation data. UK headline inflation fell as expected to 10.5%. UK consumer price inflation fell to a three-month low of 10.5% in December but remains close to 40-year highs. The core CPI reading, which excludes food and energy from the calculations, underscores the tense labor market conditions seen in yesterday's UK employment data, while the recent fall in energy prices has contributed to the decline in the headline figures.
The BoE has raised interest rates nine times since December 2021 to try to bring down inflation, with markets currently evaluating an 82% chance of a 50 bp rate hike at its next meeting, scheduled for February 2.
GBP/USD holds its gains above 1.2300 again, undisturbed by mixed UK CPI data amid fresh US dollar weakness.
Today's UK employment data becomes more important for GBP/USD traders given the recent comments from Bank of England (BoE) governor Andrew Bailey, as well as the worsening conditions of the UK labor strikes.
EUR/USD
The EUR is one of the weakest contenders against the US Dollar, with EUR/USD pulling back sharply after testing the 1.0870 level. The rest of this week is quite sunny on the economic calendar, which tends to support existing trends.
The EUR/USD pair fell sharply mid-session in the US despite significant US dollar weakness. The euro fell after market talks suggesting that representatives of the European Central Bank (ECB) are considering slowing down the pace of monetary policy tightening. Rumors suggest that CEO Christine Lagarde and company will decide to raise interest rates by 50 basis points in February. The comments of the European Central Bank's chief economist Philip Lane also influenced the euro, who said that in order to bring interest rates back to their target levels and bring inflation back to the desired level, it will be necessary to stop the tightening of monetary policy by the central bank.
At the World Economic Forum EU officials have announced their intention to accelerate the energy transition with a series of fiscal measures that support technological innovation in the green energy space. The support is expected to include a state aid mobilization as well as a sovereignty fund to stop companies relocating to the US.
Source: finance.yahoo.com, investing.com, dailyfx.com
