Global Markets Hold Breath Ahead of US Inflation Data
As the world waits with bated breath for the release of US consumer price index (CPI) numbers, currency markets are experiencing a mix of emotions. The Japanese yen is gaining strength, fueled by speculation of a potential rate hike by the Bank of Japan (BOJ) at its next meeting. Meanwhile, the British pound is finding solace in cooling inflation, but traders remain cautious ahead of the crucial US data.
BOJ Governor’s Comments Spark Yen Rally
BOJ Governor Kazuo Ueda’s remarks about raising interest rates and adjusting monetary support if economic and price conditions continue to improve have sent the yen soaring. This comes on the heels of Deputy Governor Ryozo Himino’s statement that the BOJ will debate a rate hike at next week’s policy meeting. As a result, the dollar has fallen 0.5% against the yen, with Japanese government bond yields reaching multi-month highs.
Experts Weigh In on BOJ’s Next Move
According to Jordan Rochester, head of EMEA fixed income, currencies, and commodities strategy at Mizuho, it would be unusual for the BOJ to skip January’s meeting, given the pickup in Japanese CPI, firm wages, and higher oil prices. However, he notes that the market’s reaction will depend on next Monday’s events, including Trump’s inauguration.
British Inflation Data Brings Relief to Pound
In Britain, unexpected slowing of inflation last month has brought welcome news for finance minister Rachel Reeves. Core measures of price growth, tracked by the Bank of England, have fallen more sharply, leading to increased expectations of a rate cut in February. While the pound remains steady, British government bond yields have fallen sharply, providing support for sterling.
Euro and Other Majors Steady
The euro remains steady at $1.0302, while other majors, including the Swiss franc and Australian dollar, are also holding steady. As the world waits for the US CPI numbers, traders are exercising caution, aware that a figure above the expected 0.2% monthly increase in core consumer prices could limit the scope for Federal Reserve rate cuts this year.
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