PCE drop boosts sentiment
Global markets finished last week on a positive note thanks to a lower-than-expected US inflation reading that boosted sentiment.
The US’s personal consumption and expenditure series (PCE) saw a sharp drop with the headline number falling 3.8% in May to 3.0% in June. The core number fell from 4.6% to 4.1%.
The result was seen as more evidence that the US Federal Reserve is winning the war on inflation.
The S&P 500 gained 1.0% while the Nasdaq climbed 1.9%. The US dollar was broadly flat after a volatile session.
BoJ’s wild ride
Earlier, FX markets had seen huge levels of volatility on Friday after the Bank of Japan produced a confusing tweak in monetary policy.
While the BoJ made no official change to policy, the central bank said it would manage its yield curve control program, which keeps Japanese ten-year bond yields anchored at a range around 0.00%, with more “flexibility”.
The USD/JPY jumped 1.7% on the news before falling another 2.3% over the next hour.
The pair ended at 141.00 – a three-day high in a sign the market saw the shift as broadly negative for the JPY.
Aussie weaker ahead of Tuesday’s RBA
The Australian dollar was weaker on Friday with markets nervous ahead of Tuesday’s Reserve Bank of Australia decision. The AUD/USD fell 0.9%.
According to Refinitiv, markets see only a 22% chance of a hike although a majority – 20 out of 36 – economists surveyed by Reuters expect the RBA to hike from 4.10% to 4.35%.
Australian growth has certainly slowed recently with last week’s PMI numbers signaling a contraction in both the manufacturing and services sectors.
Later in the week, NZ employment, a Bank of England decision and the all-important US non-farm employment report set up a big week for FX markets.
Yen lower after BoJ’s wild ride
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 31 July – 4 August
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
