USDJPY retreats from three-month high as yields ease, Japan intervention looms

Traders take a sigh of relief early Wednesday, after witnessing heavy volatility the previous day, as the Fed hawks seek more clues to defend the recent bias suggesting a delay in the US central bank’s rate cuts. Also, Hong Kong’s return after a long weekend and an absence of major negatives from the geopolitical factors allowed the market players to pare Tuesday’s heavy moves.

That said, strong US inflation bolstered the market’s calls for a delay in the Fed rate cuts while a pullback in the US equities offered additional strength to the US Treasury bond yields and the US Dollar.

With the strong US Dollar, the riskier assets like commodities and Antipodeans slumped to multi-day lows while the major currencies also posted a notable fall versus the Greenback. However, crude oil was an exception and rose to a monthly high due to impressive fundamentals.

Popular cryptocurrencies like BTCUSD and ETHUSD were no exceptions and halted their recent run-ups at a multi-day high before picking up bids early on Wednesday, mainly due to the optimism about the spot ETF approvals.

Following are the latest moves of the key assets:

• Brent oil remains firmer at two-week high, up 0.30% intraday near $83.10.
• Gold price licks its wounds at two-month low, dicey near $1,990 at the latest.
• USD Index makes rounds to the highest level since mid-November, around 104.80 as we write.
• Wall Street closed in the red while the Asia-Pacific stocks edged lower. That said, shares in Europe and the UK print mild gains during the initial hour of trading.
• BTCUSD picks up bids to reverse the previous day’s retreat from the multi-month high near $49,800 by the press time while ETHUSD also stays mildly bid to $2,650 as we write.

Cautious optimism prevails after US inflation bolstered Greenback…

The previous day’s US inflation numbers came in firmer than expected and bolstered the market consensus that the US Federal Reserve (Fed) will delay the much-awaited rate cuts, which in turn favored the US Dollar index and yields.

It should be noted that the US Consumer Price Index (CPI) rose past market forecasts and previous data on MoM while the CPI ex Food & Energy, also known as the Core CPI, appeared more lucrative in highlighting the need for “higher for longer” rates.

Following the strong US inflation and core inflation numbers for January, the odds of witnessing the Fed rate cuts in May slumped to 40% versus 70% a day earlier. That said, there is only a 10% chance of witnessing the Fed’s rate cut in March while such action is nearly 50% expected to take place in June. It should be noted that Jeffrey Gundlach, a prominent founder of a hedge fund company DoubleLine Capital ruled out Fed rate cuts in 2024 and allowed the US Dollar bulls to keep the reins.

Not only the hawkish Fed concerns but the downbeat performance of the US equities also fuelled the US Dollar and Treasury bond yields, which in turn weighed on the prices of major currencies, commodities and Antipodeans. That said, On Tuesday, the US small caps witnessed the biggest daily loss since June 2022.

With this, the Gold price marked the biggest daily slump since early December 2023. However, the Oil prices ignored upbeat US inflation data-linked US Dollar rally, as well as a huge build in the crude oil inventories per the private surveyor American Petroleum Institute (API), to refresh the monthly high. The reason could be linked to the monthly report of the Organization of the Petroleum Exporting Countries (OPEC). That said, the Oil cartel revised the world economic growth forecasts for 2024 and 2025 while keeping the Oil demand view intact.

Elsewhere, the concerns about the German government’s downward revision to the economic growth joined the broad-based US Dollar strength and the mixed ZEW Economic Sentiment figures to weigh on the EURUSD price. In doing so, the Euro pair also justifies dovish comments from European Central Bank (ECB) Chief Economic Philip Lane who said that the Next move is a rate cut but timing will depend on data. Furthermore, the downbeat prints of the UK inflation joined the previous day’s strong US CPI data to drown the GBPUSD toward the weekly low even as the Greenback lacks momentum of late.

On a different page, a verbal intervention by the Japanese officials joined a corrective pullback in the yields to drag the USDJPY from the highest levels in three months. That said, Japan's Finance Ministry's Vice Finance Minister for International Affairs Kanda and Finance Minister Suzuki advocated market intervention to limit the Yen’s moves. However, Bank of Japan (BoJ) Governor Kazuo Ueda signaled that he is not facing much opposition to tightening, which in turn favored the Yen’s rebound.

Additionally, New Zealand’s Retail Sales for January recovered but India’s Wholesale Price Index (WPI) eased for the said month.

• Strong buy: USDCAD, USDJPY
• Strong sell: Crude Oil, US Dollar, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold
• Sell: DAX, FTSE 100, BTCUSD, AUDUSD, EURUSD

Eurozone GDP, BoE’s Bailey eyed…

Looking ahead, the first readings of the Eurozone Q4 GDP and a speech from Bank of England (BoE) Governor Andrew Bailey will be in the spotlight for the day. However, major attention will be given to the performance of yields and central bankers’ speeches. That said, hawkish Fed concerns keep the US Dollar on the bull’s radar despite the latest consolidation in the market moves.

May the trading luck be with you!