- The BoJ rate hike has both negative and positive aspects.
- The chances of monetary expansion by the Federal Reserve in June have fallen below 50%.
The rise in US stock indices and the consolidation of oil prices allowed it to find its balance. The bulls were not even fazed by the fact that, for the first time in a long time, the futures market reduced the chances of the Federal Reserve easing monetary policy in June to less than 50%. This was due to aggressive comments from officials.
Chicago Fed President Austan Goolsbee noted that given the Fed's mission to bring inflation to 2%, there may not be another cut in the . With inflation at 3%, it is not clear that monetary policy is restrictive. Boston Federal Reserve President Susan Collins believes the labor market is showing new signs of stability. At the same time, the Federal Reserve needs more evidence that inflation is returning to its target. In such conditions, the best solution is to keep rates high for longer.
However, investors in US stocks are gradually recovering from the sell-off caused by fears about the impact of artificial intelligence on the US economy. The growth in global risk appetite is putting pressure on the US dollar as a safe haven asset. At the same time, the stabilization of Brent is helping the euro. The eurozone is a net importer of oil. Therefore, signs of de-escalation in the Middle East conflict are having a positive impact on the EURUSD.
Meanwhile, China's ban on critical mineral exports to Japan and signs of concern from Sanae Takaichi over rising overnight rates accelerated the USDJPY's rally. According to an informant from the local newspaper Mainichi, in a meeting with Kazuo Ueda, the prime minister expressed concern about the tightening of monetary policy expected by the markets. This was confirmed by the government's appointment of two new “doves” to the Governing Council of the Bank of Japan.
Rate increases raise bond yields and increase the cost of servicing debt. This ties Sanae Takaichi's hands in terms of fiscal stimulus. On the other hand, the prolonged pause of the cycle by the Bank of Japan causes a weakening of the yen and an acceleration of inflation. The Prime Minister must find a delicate balance.
Gold rises and falls along with the S&P 500. This confirms the theory that investors periodically sell precious metals to cover stocks' margin requirements.
The FxPro Analyst Team
