The yen inches towards an 11-month low as traders ponder the timing of the BoJ’s big unwind. As inflation has been above the central bank’s 2% target for over a year, a buildup in hawkish comments by officials lately suggests that the bank might unwind its ultra-loose policy soon. Any move from the BoJ, the dovish outlier among major central banks, may trigger volatility as market participants have been closely watching for any signs of a fundamental shift. The US dollar could sink below 143.50 in case of a hawkish signal out of the BoJ meeting this week. Otherwise, the pair would continue past last October’s ceiling at 150.00.
The pound hits a three-month low as the UK’s economy shows cracks amid high borrowing costs. A rise in the unemployment rate and a contraction in GDP in July are the latest signs of a cooling economy. However, steady pay growth could be policymakers’ headache and likely to sustain a hint of hawkishness. The market expects another round of rate hikes to rein in the highest inflation pressure among major economies. The real question to move the market is what will happen next. If BoE Governor Bailey confirms that the bank is ending the tightening campaign soon, Sterling could fall below 1.2300 with 1.2730 as the resistance ahead.
The Swiss franc softens as low inflation may prompt the SNB to reconsider rate hikes. Inflation has held steady below the bank’s target, raising speculations that it could conclude its monetary tightening soon. Traders widely anticipate the SNB to lift interest rates from 1.75% to 2% at its upcoming policy meeting. However, the forward guidance will most likely be under the spotlight. Chairman Thomas Jordan may not be content with what could be a temporary slowdown in price growth, especially given the volatile nature of energy prices going into the winter. The pair is testing 0.9000 with 0.8760 as the first support.
The Nasdaq edges higher in the hope that the Fed will push the pause button in its rate hike cycle. Recent US inflation showed that core components have stayed on a downward trajectory. The market is riding the optimism that data are strong enough to prevent a recession, but not too hot to trigger extra tightening steps from the central bank, reinforcing the belief that a soft landing is in the making. If the Fed holds its rates unchanged this month and strikes a dovish outlook for its November meeting, risk appetite could go through the roof, carrying the growth-focused index beyond 16000. 14700 is the closest support.
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