FOREX-The U.S dollar weakened against all of the major currencies

The U.S dollar weakened against all of the major currencies as Treasury yields took a tumble. Federal Reserve Chairman Powell admitted that inflation data has been higher than expected and they lack certainty on transitory inflation even though they believe that to be the case. This line is important because it reinforces the possibility of Fed taper this year. Powell sees the next six months as critical for inflation, to see if falls back like they expect. The fact that he still maintains the view that inflationary pressures will subside indicates that policy changes are a ways off. The Fed is trailing behind New Zealand, Canada, and the U.K central bank, and the worry are they will fall further behind on the curve and be forced to tighten more aggressively in the future. Looking ahead, the Empire State and Philadelphia Fed surveys will provide more insight into how quickly the Fed will act. If manufacturing activity continues to weaken, even if it is driven by supply chain disruptions, the Fed will wait. If manufacturing issues are resolved and activity accelerates, the pressure on the Fed to taper increases. Central banks are taking bigger leaps to normalize monetary policy and investors are wondering If the Federal Reserve is next. Yesterday, the Reserve Bank of New Zealand shocked investors by suddenly halting asset purchases. Although hawkishness was widely anticipated with a number of local banks forecasting a November rate hike, most expected the RBNZ to taper not cease asset purchases. But “more persistent consumer price inflation pressure,” that is “expected to build over time due to rising domestic capacity pressures and growing labor shortages,” prompted more aggressive action from the central bank. Unlike other countries, New Zealand’s labor market returned to pre-pandemic levels earlier this year and with the prices proving to be persistent, the Reserve Bank is worried that inflation could overshoot its target. The Bank of Canada also reduced monetary stimulus but their adjustment was less significant compared to the RBNZ. They scaled back bond buys for the second time in a row by 1 billion per week, which was more than the consensus forecast for an overall reduction of 1 billion.

Euro

The single currency traded lower as Eurozone industrial production fell in May by more than expected, driven down mostly by a drop in the output of non-durable consumer goods such as food and clothes, data released yesterday showed. Industrial output fell 1.0% month-on-month, whereas economists polled by Reuters had expected a 0.2% decline. Overall, the EUR/USD traded with a low of 1.1823 and a high of 1.1880 before closing the day around 1.1877 in the New York session.

Yen

The Japanese Yen gained as the dollar retreated from recent peaks today, following further reassurance from Federal Reserve chair Jerome Powell that he was in no rush to tighten policy, though losses were kept in check by investor's nerves ahead of Chinese growth data. Powell said overnight that high inflation seemed linked to reopening. Overall, the USD/JPY traded with a low of 109.71 and a high of 110.24 before closing the day around 110.10 in the U.S session.

British Pound

The British Pound climbed against the dollar yesterday as UK inflation rose more than expected to its highest in almost three years, stoking speculation the Bank of England will have to consider sooner whether to reduce its massive stimulus program. Inflation jumped in June further above the BoE's 2% target to hit 2.5%, its highest since August 2018. Overall, the GBP/USD traded with a low of 1.3754 and a high of 1.3898 before closing the day at 1.3897 in the New York session.

Canadian Dollar

The Canadian Dollar was up as the Bank of Canada reduced the scope of its bond-buying program but held its key interest rates at a record low. The loonie cut its gains against the U.S dollar following the Bank of Canada's announcement. The bank also warned that inflation would be higher than previously forecast over the near term. Overall, USD/CAD traded with a low of 1.2440 and a high of 1.2554 before closing the day at 1.2441 in the New York session.

Australian Dollar

The Australian Dollar gained as Australia's jobless rate, led by the country's remarkable recovery from the coronavirus pandemic, improved to a level last seen during the once-in-a-generation mining boom and may help bring forward the date of monetary policy tightening. 29,000 net new jobs were created in June, in line with forecasts for a 30,000 gain. Overall, AUD/USD traded with a low of 0.7460 and a high of 0.7532 before closing the day at 0.7482 in the New York session.

Euro-Yen

EUR/JPY is trading below 14, 50, and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also issuing a bearish stance. The Relative Strength Index is above 30 and lies below the neutral zone. In general, the pair has gained 0.63%.

Sterling-Yen

Currently, GBP/JPY is trading below 14 and above 50, 100 days moving average. Fast stochastic is issuing a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 33 reading and lies below the neutral zone. On the whole, the pair has gained 1.15%.

Aussie-Yen

Currently, the cross is trading below 14, 50, and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 28 reading and lies below the neutral region. In general, the pair has gained 1.15%.

Euro-Sterling

This cross is currently trading below 14, 50, and 100 days moving average. Fast stochastic is indicating a bearish tone and MACD is issuing a bullish signal. The Relative Strength Index is above 48 and lies below the neutral region. Overall, the pair has lost 0.54%.

Sterling-Swiss

This cross is trading above 14 and below 50, 100 days moving average. Fast stochastic is issuing a bullish stance and MACD is also indicating a bullish tone. The Relative Strength Index is above 42 and lies below the neutral region. In general, the pair has gained 0.67%.

Disclaimer

This information has been prepared for information only and does not constitute an offer or commitment. This information does not constitute investment advice as defined by the rules of the FCA.