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US dollar up on higher rate warnings...will Japan repeat last years Sept/Oct intervention?

Good morning

US dollar is on the move. Comments from Feds Kashkari suggest not only can US rates go higher, but they could stay there for longer. Kashkari is a known hawk and the comments may not come as much of a surprise but do serve as a reminder that Feds fight against inflation is far from over and that some Fed officials would be comfortable with higher rates. Feds Goolsbee added that risk of rate rises to the economy are less than risk of inflation being stuck well above target and that rates could stay high well into next year. Feds Bowman speaks later today, she is also on the hawkish side and just last week voiced her preference for higher rates. Higher for longer is likely to be the message from her.

ECBs Lagarde yesterday also talked of the risks of taking too long to get inflation back to target, but she regards ECB rates as already restrictive enough to make a significant contribution in lowering inflation. She made it clear rate cuts are not on the agenda but it didn’t sound like she is eager to push rates higher. ECBs Schnabel added that activity in the Euro area is already moderating, it doesn’t mean the fight against inflation is over but the ECB seem concerned about the slowing economy as well as inflation.

Where does this all leave the currency markets? Well GBPUSD is 1.2170 and EURUSD 1.0570, both showing the effects of the stronger US dollar. It looked as though EUR would come off slightly worse, GBPEUR managing a mild rally to 1.1535 overnight but as I type its back at almost 1.1500, just ahead of the short term support around 1.1490. There seems real danger of a shift lower in GBP despite the fact that out of Fed, ECBN and BoE it is BoE who are possibly more likely to raise rates again.

USDJPY is 149.15, once again shrugging off mild attempts of verbal intervention from Japan’s Suzuki who said they are watching market moves with a sense of urgency and that rapid moves are undesirable. Elsewhere in Asia, China once again fixed USDCNY far lower than the market, fixing at 7.1724 against a reasonable 7.3174. Indeed, this is the strongest ever CNY fix vs estimates, some 1447 points. USDCNY traded very close to its daily trading limit, which could trigger official intervention from China.

That’s all for now. Its not a busy calendar but I’m thinking we’ll be spending much of the day looking for low risk downside GBP trades just in case we do see further declines. I’d still like to get some downside USDJPY trades on just in case we see intervention but I have said the same thing many times over the past few months and we’d have spent a lot of money with no reward had we kept playing that hand.

Almost one year ago exactly (22 Sept 2022) Japan did intervene by buying Yen, moving USDJPY from around 146.00 to low 140s. This was the first time since 1998 they had officially stepped in, and they intervened again in October 2022, USDJPY moving from above 151.00 to 146.50. In Nov 2022 USDJPY fell sharply from 146.00 to 140.00 on weaker US CPI and in Dec 2022 BoJ widened the yield curve bands which sent USDJPY lower from 137.50 to 131.00 or so.

Is there any reason why this action came late in the year and more importantly is there any chance of history repeating itself ? With Asian holidays coming up liquidity could be thin, perhaps now is a good time to get something on just in case. Short dated downside USDJPY or GBPJPY perhaps? Problem is, nothing is cheap. I’ll keep looking………

- 14.00 US house price index

- 15.00 US consumer confidence, new home sales

- 18.30 Feds Bowman speaks

- 00.50 BoJ mimutes

- 02.30 AUD monthly CPI


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