Dollar recovers as Fed hints at cuts meanwhile yen firms on BOJ hawkishness
The Bank of Japan (BOJ) raise interest rates to levels not seen in 15 years. This prompted traders to reassess popular carry trades before the Federal Reserve held rates steady but hinted at potential rate cuts as U.S. inflation cools. Markets have been fully pricing in a 25 basis points (bps) rate cut and have increased their wagers on the Fed going further. Powell clarified that policymakers are not considering a 50-bps cut “right now.”
Powell’s comments suggest the bar for a rate cut in September is low. They expect favourable July inflation data and believe that even neutral news could ensure a September cut.
Find out more about the dollar and yen strength here.
Disclaimer:
The BOJ’s move to increase rates was unexpected, as the recent yen rebound seemed to reduce the pressure to hike. However, the BOJ appears determined to raise interest rates and normalise policy. This could lead to more yen strength but might weigh on the local economy and equity markets. Risk management is advised for day traders.
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