The US Dollar gained against the Japanese Yen on August 5 after surprisingly good US jobs data, posting its highest daily percentage growth from two months ago as investors increased their bets on a 75 bps rate increase in the coming month. And ever since, the spotlight has switched to the consumer price index (CPI) figures for the past month, which will come in on August 10.
The dollar index (DXY), which compares the dollar’s value to a range of other currencies, decreased slightly to 106.23. It continued to trade under the 106.93 high of August 5, reached after more than a week. The value of the pound was essentially unchanged at $1.2055, and the value of the Japanese Yen remained unchanged at roughly 134.90 JPY. The euro got at $1.0213, or 0.2% stronger.
The Societe Generale Currency Strategist, Kenneth Broux noted his worries about inflation by saying that “The market has been wrong-footed all year and if we get a strong core inflation print that will nail expectations for a 75 bps rate hike in September.” He went on to say that, “It’s too soon to say it’s time to short the dollar as the Fed may have to do more.”
In the past 2 months, the US Federal Reserve significantly raised interest rates by 75 basis points. Money-market futures indicate that traders are beginning to extend estimates for rate cuts further into 2023 and estimate around a two-thirds possibility of a 75 bps boost in September. The 8.7% headline inflation rate predicted by economists surveyed by Reuters is quite high but lower than the 9.1% estimate from July. The Fed sets a 2% inflation objective.
Strong labor market statistics from the week before increased hopes for swift near-term rate increases, boosting short-dated Treasury rates higher beyond the decisions of counterparts.
The difference between the yields on two-year and ten-year Treasury bonds, which is a reliable gauge of recession, has reached its highest point in 20 years.
A New York Federal Reserve survey released on August 8 revealed that consumer inflation expectations dropped significantly in the past month, maybe providing some glimmer of light for the CPI data.
Given the dollar’s role as a safe haven, it can be challenging to forecast how the dollar will respond, particularly now that there has been an intensity of concern with growth as well as geopolitical developments moving forward.
As the London trade began, consumer sentiment declined in Australia for 9 months in a row, and the Australian Dollar and New Zealand Dollar saw a slight decline.
