On May 20, during a conference hosted by the Federal Reserve Bank of Atlanta, Philadelphia Fed President Anna Paulson clearly stated she does not support lowering interest rates until sustained improvement in inflation is achieved. In her prepared remarks, she noted, "Current policy is mildly restrictive, which helps contain inflationary pressures while the labor market remains stable." She emphasized that holding rates steady provides policymakers time to assess economic trends and the balance of risks between price stability and employment. Paulson mentioned that the U.S. unemployment rate has been "remarkably stable," indicating the labor market is largely in balance, and inflation was already elevated before energy prices were pushed higher by the conflict involving Iran. She added, "If the labor market remains balanced, then a rate cut would only be appropriate after we see sustained improvement in inflation."
Separately, Japanese Finance Minister Shunichi Suzuki stated on Tuesday after attending a G7 meeting in Paris that Japan is prepared to take "bold action" in the foreign exchange market if necessary to curb the yen's persistent weakness. His comments prompted a brief strengthening of the yen to around 158.91 against the dollar. However, market analysts warn that verbal intervention and direct market operations alone are unlikely to fundamentally reverse the yen's decline. Alberto Tamura, CEO of Morgan Stanley Japan, suggested that a Bank of Japan rate hike in June is crucial for yen strength. If the central bank does not act then, it could impact bond and currency markets, potentially pushing the yen further down toward 170 per dollar.
Key data to watch today includes the UK's April annual CPI rate, the annual retail price index, the unadjusted input PPI annual rate, and the Eurozone's April harmonized CPI annual rate.
Gold/USD Gold declined yesterday, falling below the 4500 level and currently trading around 4475. The primary pressure came from hawkish remarks by Fed officials, which boosted expectations for further rate hikes. Additionally, rising U.S. Treasury yields also weighed on gold. Resistance is seen near 4550 today, with support around 4400.
USD/JPY The USD/JPY pair advanced yesterday, reaching a 13-day high and currently trading around 159.00. The main driver was the strengthening of the U.S. dollar index, supported by hawkish Fed commentary and increased rate hike expectations. However, gains were limited by positive Japanese economic data released during the session and concerns over potential further intervention by Japanese authorities in the currency market. Resistance is anticipated near 160.00 today, with support around 158.00.
USD/CAD The USD/CAD pair consolidated with a slight gain yesterday, currently trading around 1.3760. Support came from a stronger U.S. dollar, fueled by hawkish Fed rhetoric and heightened rate hike expectations. Weak economic data from Canada also provided some support for the pair. However, rising crude oil prices capped the upside. Resistance is seen near 1.3850 today, with support around 1.3650.
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