Tokyo Core CPI Surge, ISM Services PMI, and More

Tokyo core CPI surge to 2.5%, pressures BOJ; USD/JPY expected to decline. ISM Services PMI impacts global markets.

According to recent data, the Tokyo core Consumer Price Index (CPI) surged to 2.5% year-on-year (YoY) in February, marking the highest reading in four months. This acceleration from 1.8% YoY in the previous month signals a departure from the Bank of Japan’s (BOJ) 2% target, heightening pressure on the central bank to reconsider its ultra-loose monetary policy and possibly contemplate an interest rate hike. Consequently, demand for the Japanese yen is forecasted to increase, potentially driving USD/JPY lower from its current trading level of around 150.50.

The increase in inflation comes after seven months of slower growth, indicating a potential shift in Japan’s economic landscape. The latest inflation data poses a significant challenge for the BOJ, which has been striving to achieve sustainable inflation growth while maintaining financial stability.

Contrastingly, analysts expect that the Institute for Supply Management (ISM) Services Purchasing Managers’ Index (PMI) release at 3:00 pm GMT will influence trading activity in the US and European sessions. The ISM Services PMI, which has consistently expanded over the past 13 months, is projected to extend this trend with an estimated reading of 53.0. Additionally, the price component of the PMI has expanded for 80 consecutive months, with January’s reading of 64.0 marking the most substantial increase since August 2012. Should the February data align with expectations, it could stimulate demand for the US dollar later in the day.

Tokyo Core CPI Surge, ISM Services PMI, and More

Meanwhile, gold prices may face pressure as demand for the US dollar strengthens. The ISM Services PMI, if positive, could drive up demand for the US currency, consequently weighing on gold prices.

In Australia, the services sector rebounded in February, recording expansion following four consecutive months of contraction. The services PMI reading increased to 53.1 from 49.1 the previous month, accompanied by accelerated employment growth and new business activity. However, this uptick in services activity also increased inflation rates for the sector, potentially impacting the performance of the Australian dollar.

Amid these developments, we assess market sentiments towards various currencies as follows:

• USD: Weak Bullish
• Gold (XAU): Weak Bearish
• AUD: Weak Bearish
• NZD: Weak Bearish
• EUR: Weak Bearish
• CHF: Weak Bullish
• GBP: Weak Bearish
• CAD: Weak Bullish
• Oil: Weak Bearish

Central banks in respective regions have maintained their policy rates, awaiting further economic data before adjusting. Markets anticipate the next significant meeting for monetary policy decisions on March 19, 2024.

Moreover, investors remain cautious amidst uncertainties surrounding global economic conditions, with a keen eye on forthcoming data releases and central bank announcements for insights into future market trends.

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