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Bank of Japan board member Ayano Sato: Core CPI data is not very strong, but wholesale inflation is relatively strong, so it is necessary to take all kinds of data into account.The onshore yuan closed at 6.7852 against the US dollar at 16:30 on June 30, up 77 points from the previous trading day.Bank of Japan board member Ayano Sato: We will assess underlying inflation and review various data.Bank of Japan board member Ayano Sato: One negative aspect of former central bank governor Haruhiko Kurodas stimulus policies was that they failed to achieve the 2% inflation target.On June 30th, the Japanese governments monthly economic report released Tuesday maintained its assessment of a "moderate recovery" in the economy, indicating that there is still room for economic expansion. The May index, to be released on July 7th, is expected to show that the economy has been on an upward trend for 72 consecutive months (six years). If the June and July readings also point to continued growth, the current expansion cycle will surpass the previous record of 73 months. Driven by robust growth in consumer spending and trade, the Japanese economy has had a strong start to the year, with demand for artificial intelligence-related products providing key support for exports. However, household consumption trends remain uncertain as inflation erodes purchasing power. Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute and a private member of the Takashi City Governments Economic and Fiscal Advisory Committee, is more optimistic about future trends: "Supported by the investment boom in generative AI and resilient production activities, a recession is unlikely in the short term."

Investor attention is on the Fed's minutes as recession fears drive the US Dollar Index towards 107.00

Daniel Rogers

Aug 16, 2022 11:47

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The US Dollar Index (DXY) rises for a third day in a row during Tuesday's Asian session, gaining bids to 106.58. Thus, the greenback's signal captures the market's rush for risk-free assets in response to worries about the US and China's economies as well as worries about geopolitics in the Middle East, China, and Russia. It is noteworthy that aggressive Fed remarks and weaker US data enhance market trepidation and help DXY bulls.

 

Despite this, the DXY bulls closely monitor the gloomy statistics coming out of China and the US, particularly in light of the recession fears.

 

In August, the US NY Empire State Manufacturing Index fell from 11.1 in July to 31.3, below market estimates of 8.5. The August NAHB homebuilder confidence index in the US fell from 55 to 49, the lowest level since the start of 2020.

 

In other news, China's retail sales slowed in July to 2.7% YoY from 3.1% earlier and 5.0% forecast, while industrial production (IP) fell to 3.8% from 3.8% previously and 4.0% market estimates. Additionally, in an effort to counter bearishness, the People's Bank of China (PBOC) shocked the markets on Monday by reducing the rates on its medium-term lending facility (MLF) by 10 basis points (bps).

 

It should be emphasized that news stories about deteriorating coronavirus conditions in Shanghai, China's financial center, and the restart of Russian bond trading on Wall Street did not spur investors' desire to take risks. The Wall Street Journal's (WSJ) rumors of a potential meeting between US Vice President Joe Biden and his Chinese counterpart Xi Jinping may also encourage investors to take more risks. In a similar vein, Chinese President Xi proposed new efforts to revive the second-largest economy in the world.

 

The Pentagon said on Monday that the US, South Korea, and Japan took part in a missile warning and ballistic missile search and tracking exercise last week off the coast of Hawaii. Between August 22 and September 1, the US and South Korea will collaborate on military drills. The DXY rises as a result of the additional stress that geopolitical worries place on market sentiment.

 

The three-day downtrend in US 10-year Treasury yields is around 2.775%, while S&P 500 Futures are down at least 0.13 percent day-to-day.

 

Moving on, the secondary US housing and activity data released today should be of interest to DXY traders ahead of the release of the FOMC Minutes on Wednesday. The dollar's gauge might remain on the bear's radar if US data keep getting worse.

 

The three-week-old resistance line, which is now support at 106.35, would need to be broken for an extended period of time for DXY bulls to hit the monthly high above 107.00. However, in order to approach July's yearly high close to 109, the bulls need confirmation from late July's peak at 107.45.


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