On July 10th, a former Bank of Japan official indicated that the central bank might accelerate the pace of interest rate hikes later this year, potentially pushing the benchmark rate above 2% as it urgently works to contain inflation that is nearly running out of control. Professor Tsutomu Watanabe, an emeritus professor of economics at the University of Tokyo who left the BOJ in 1999, stated in a media interview on Wednesday, "I think the eventual terminal rate will be higher than most people currently expect." "The terminal rate will be around 2%, or perhaps slightly above 2%." Watanabe remarked, "Policy should be thought of in a dynamic way, not a static one," adding that the terminal rate isn't solely about mathematical calculations showing the neutral rate but also includes factors like inflation overshooting before the BOJ clearly tightens policy. He noted that authorities have so far taken a "reactive" approach to policy as they seek to achieve a virtuous cycle where wage increases drive demand-led price rises. With underlying inflation nearing the 2% target, the policy board may shift to a more proactive stance to prevent price growth from overshooting.
Separately, the number of Americans applying for unemployment benefits edged lower last week, with layoff levels remaining at historically low levels. The U.S. Labor Department reported on Thursday that initial jobless claims fell by 2,000 to 215,000 for the week ending July 4th, coming in below the 220,000 expected by analysts surveyed by FactSet. Weekly jobless claims are seen as a proxy for layoffs and a real-time gauge of the U.S. labor market's health. The four-week moving average for claims decreased by 3,750 to 218,750. Continuing claims, which represent the total number of people receiving benefits, increased by 8,000 to 1.81 million for the week ending June 27th, which is also a historically healthy figure.
Key data to watch today includes Germany's final June CPI year-over-year rate and Canada's June employment change figures.
Gold/US Dollar
Gold traded higher yesterday, posting a modest gain on the daily chart, with the current spot price hovering around 4115. In addition to short-covering providing some support, a cooling of expectations for Federal Reserve rate hikes and significant internal divisions within the Fed, as revealed in the latest policy meeting minutes, were also key factors supporting the rebound in gold. Furthermore, some easing of tensions in the Middle East also contributed to the support for the precious metal. Today, focus will be on resistance near the 4180 level, with support found around 4050.
US Dollar/Japanese Yen
The USD/JPY pair moved lower yesterday, ending the day with a slight loss. It is currently trading around 161.60. Aside from profit-taking exerting some downward pressure, the diminished expectations for Fed rate hikes also weighed on the pair. Additionally, concerns over potential renewed intervention by Japanese authorities in the currency market contributed to the selling pressure. Resistance is eyed near 162.50 today, while support lies around 160.50.
US Dollar/Canadian Dollar
The USD/CAD pair consolidated within a narrow range yesterday, closing slightly lower. The current spot price is near 1.4160. Persistent pressure from cooling Fed rate hike expectations was a key factor, alongside rising expectations for potential rate hikes by the Bank of Canada, which also weighed on the pair. However, a pullback in crude oil prices from recent highs limited the downside for USD/CAD. Resistance is seen near 1.4250 today, with support around 1.4050.
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