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Currency Volatility: BoJ Holds Rates, US Inflation in Focus

A Japanese flag flutters at the Bank of Japan headquarters in Tokyo on July 29, 2022. Japan’s economy grew at an annual rate of 2.2% for the April-June quarter from the previous quarter, the government said Monday, Aug. 15, as consumer spending rebounded with COVID-19 restrictions getting gradually lifted. (AP Photo/Shuji Kajiyama)

The BoJ holds rates, but the yen is weak. Eyes are on US inflation data and the SNB speech. Currency markets are poised for volatility.

In today’s Asia session, the BoJ maintained its key policy rate at 0 to 0.1% after a ten-basis-point hike in the previous meeting. This decision came amid the BoJ’s projections of softer economic growth and higher inflation shortly, fueled by increasing import costs and fewer government relief measures. The announcement immediately impacted the currency markets, notably weakening the yen against the US dollar.

Following the BoJ’s decision, the USD/JPY currency pair surged from 155.55 to 156.22, a substantial increase. Analysts predict that this upward trend may persist, potentially leading to a seventh consecutive week of robust gains for the USD/JPY pair.

Implications for Europe & US Sessions: Eyes on Swiss National Bank and US Inflation Data

Market participants will closely monitor key events and data releases in the upcoming Europe and US sessions for further insights into monetary policy and inflation trends.

Swiss National Bank (SNB) Governing Board Chairman Thomas Jordan will speak at the SNB’s General Meeting of Shareholders in Bern. His remarks may provide valuable insights into the future direction of monetary policy in Switzerland, especially following the surprise interest rate cut in March. The Swiss franc has weakened notably since the last board meeting and could face additional pressure depending on Jordan’s statements.

In the US, all eyes will be on the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred measure of inflation. Recent data indicate a steady buildup of price pressures, and there is anticipation that the PCE Price Index may exceed market estimates, potentially reigniting bullish sentiment for the US dollar.

Currency Volatility: BoJ Holds Rates, US Inflation in Focus

Market Outlook

Depending on the outcome of the PCE Price Index release, the Dollar Index (DXY) could gain bullish momentum in the currency markets.

Gold (XAU) prices may face headwinds if the PCE Price Index surprises the upside, leading to a resurgence of dollar bulls.

The Australian Dollar (AUD) and New Zealand Dollar (NZD) may experience volatility during the US session, influenced by market sentiment following the release of inflation data.

The BoJ’s decision to hold rates steady continues to weaken the Japanese Yen (JPY) against the US dollar.

The Euro (EUR) and British Pound (GBP) could encounter overhead pressures during the US session, reflecting the broader market sentiment following the release of inflation data.

The Canadian Dollar (CAD) may witness fluctuations, particularly during the US session, with heightened volatility expected around the release of the PCE Price Index.

In the commodities market, crude oil prices show signs of rebounding after a recent decline, with WTI oil trading around $84 per barrel during the Asia session.

Over the next 24 hours, the currency and commodities markets will be characterized by cautious optimism, shaped by key data releases and central bank speeches.

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