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This week, several market-moving events are taking place: Firstly, there are interest rate announcements from various central banks. In the UK, the Consumer Price Index Year-over-Year is expected to show a slight decrease, with the Core CPI Y/Y also anticipated to decrease. Despite this, it is unlikely to significantly impact expectations for a 25 basis points rate hike by the Bank of England, bringing the bank rate to 4.75%. If any member votes against the rate hike, it would be considered a dovish surprise. The market expects the BoE to further increase rates to a terminal rate of 5.25%. The Swiss National Bank is also expected to raise rates by 25 bps, but at a smaller increment due to softer CPI data, signalling it may be the final rate increase. Central bank meetings are scheduled for Brazil, Mexico, and Turkey, with Turkey expected to make a significant shift toward more orthodox policies, doubling the one-week repo rate to 20% from 8.5% in an effort to curb inflation. Later in the week, Federal Reserve Chair Jerome Powell is set to testify to Congress regarding US monetary policy. Given the absence of major economic data releases since the previous FOMC Press Conference, Powell is unlikely to provide new information or deviate from previous statements, maintaining a hawkish stance with potential interest rate hikes later in the year. The number of US initial jobless claims has been rising, suggesting some softening in the labour market, which the Fed monitors closely to assess the need for further rate hikes. In the currency market, the Japanese yen is susceptible to potential currency intervention by Japanese authorities, possibly occurring earlier than anticipated. While past interventions focused on the USD/JPY pair, the overall effective exchange rate, particularly against the euro and pound, is now more relevant. See the graph below to see that we are entering the intervention space once again. |
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The US Treasury’s decision to remove Japan from its currency monitoring list could lower the hurdle for intervention by Japanese authorities, thus traders should be prepared for surprises regarding the yen. Turning to the local currency, the South African rand is experiencing a strong month, but it faces significant resistance at the 200-day moving average, which it has struggled to surpass for over a year. See the graph below. |
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The rand has performed well against the dollar, benefiting from the alleviation of electricity shortages, reduced political risks, and a rally in industrial-metal prices. Inflows in the domestic bond market have also provided support. However, concerns about China’s economic stimulus and the performance of the industrial metals complex could hinder the rand’s rally. The currency’s ability to break through the 200-day moving average and sustain its upward momentum depends on a sustained recovery in these commodities. |