The USD rebounded slightly with DXY bumping back towards 101. Caution over equities could have contributed to some position paring in USD shorts, with a US mega semiconductor company reporting earnings that are not quite overwhelming. Atlanta Fed Bostic, a voting FOMC member, also stated that he would want more data to be sure if it is time to cut, and would err on the side of waiting longer given still strong employment. The contrast with Powell’s speech at Jackson Hole may hint at a slower pace of rate cuts than priced by markets. USD could thus see a period of consolidation unless jobless claims surprise on the upside.
The JPY held on to earlier gains, with USD/JPY consolidating around mid-144. Markets will watch Tokyo CPI tomorrow closely, as BOJ Governor Ueda had expressed that further rate hikes could come if the Japanese economy moves in line with forecasts. Meanwhile, equity risks and tensions around the Middle East could keep the JPY supported on safe haven bids. On the political front, former Foreign and Defense Minister Kono Taro announced his plans to run in the Sep 27 LDP leadership election, and stated that it is appropriate for the BOJ to continue normalizing monetary policy as long as inflation remains in line with the Bank’s expectations. He also said it is time to discuss how to balance the budget as interest rates rise.
USD/CNH is consolidating around 7.13, with RMB being a laggard compared to the gains seen for both JPY and KRW after Powell’s Jackson Hole speech last Friday. While China had maintained its 1Y MLF rate at 2.30%, market expectations of further rate cuts remain. China will report its manufacturing PMI on Saturday, and a continuation of sub-50 readings could restrain the RMB against overt appreciation. Meanwhile, weaker than expected earnings in a mega Chinese retail company this week had raised worries that the Chinese consumer is cutting back on consumer goods spending. Sentiment towards Chinese equities could soften, and portfolio inflows could become less supportive of the RMB.
Quote of the day
”You can make money two ways – make more or spend less.”
John Hope Byrant
29 August in history
In 1862, the US Department of the Treasury formed the division, now known as US Bureau of Engraving and Printing, to print newly issued paper currency.
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