Written by Trump says Iran wants to “make a deal so badly”
The US dollar continued pulling back against its major peers on Thursday, losing the most ground against the kiwi, which remained supported after the RBNZ’s hawkish hike. Today, the greenback remains on the back foot, with the yen staging the biggest rally.
Following the less-hawkish-than-expected Fed minutes on Wednesday, New York Fed President John Williams said on Thursday that he did not expect a long-lasting rise in oil prices, despite the renewed US-Iran tensions, while US President Trump said Tehran reached out, wanting to “make a deal so badly”, raising hopes that the two nations could eventually return to the negotiating table.
Oil prices slipped around 5%, erasing part of the gains recorded on Tuesday and Wednesday, and thereby easing concerns about inflation spiraling out of control again. With investors scaling back again their Fed rate hike bets, Treasury yields and the US dollar retreated. According to Fed funds futures, the probability of rate hike by September dropped from around 80% to 68%, while the chance of it being delivered later this month slipped to 22% from 30%.
Barring any major reescalation in the US-Iran hostilities that could lead to reclosure of the Strait of Hormuz, dollar traders are likely to shift their attention to next week’s CPI numbers for June. If the data reveals a markable slowdown amid the drop in energy prices during the month, traders could further push back their Fed hike bets, thereby adding some extra pressure on the US dollar.
Japan to increase domestic exposure of pension fund
The Japanese yen rallied during the Asian session today, with dollar/yen dropping back below the 162.00 zone. The rally was triggered by news that the Japanese government was seeking plans to encourage its Pension Investment fund to increase exposure to domestic assets.
Japan holds the world’s biggest pension fund, and thus, expanded investment in local assets could bolster demand for Japanese Government Bonds (JGBs) and the yen. The hotter-than-expected producer inflation data may have also added some fuel to the yen’s engines, as they may have increased the chance of another quarter-point hike by the BoJ in the coming months. Indeed, according to Japan’s Overnight Index Swaps (OIS) market, a 25bps rate increase is fully priced in by January.
That said, today’s recovery in the yen is unlikely to lead to a long-lasting uptrend. Dollar/yen traders are likely to treat the slide as a renewed buying opportunity as they are unlikely to ramp up speculation that the BoJ would turn even more hawkish. After all, PM Takaichi is already calling for low interest rates, while appointing dovish members whenever a spot within the Board opens.
AI and chip stocks power Wall Street higher; gold rebounds
On Wall Street, all three of the main indices gained ground yesterday, with the tech-heavy Nasdaq adding 1.30%. This may have been due to the improvement in market sentiment after Trump’s remarks about Iran wanting to make a deal.
Chipmakers and AI-related firms were the bigger gainers, with the Philly Semiconductor Index gaining around 3% for the second consecutive day. Expectations that interest rates are unlikely to rise as fast as previously expected are also helping valuations to stay elevated.
Gold rebounded somewhat on Thursday as the pullback in Treasury yields and the dollar reduced the opportunity cost for holding the precious metal. That said, discussing a full-scale reversal may be premature as the price remains below the downtrend line drawn from the high of March 2. After all, the metal is retreating again today.
by XM.com
