Will Powell's Remarks Continue to Ripple? Thin Trading Expected with London Closed on Monday

Will Powell’s Remarks Continue to Ripple? Thin Trading Expected with London Closed on Monday

Following Powell’s comments last weekend, the market has almost fully priced in expectations of a rate cut by the U.S. monetary authorities in September. However, the forecast for a significant rate cut has receded, with a 25 basis point reduction now being the mainstream expectation. In the foreign exchange market, the dollar has been sold off, with USD/JPY falling from the 146 yen range to around 144 yen, and further dropping below 143.50 yen at the start of the week. EUR/USD briefly reached the 1.12 range from the low 1.11s, and EUR/JPY fell from the 162 yen range to the 160 yen range, reflecting increased pressure on the yen. This yen strengthening is attributed to Bank of Japan Governor Ueda’s consistent stance on continuing rate hikes as planned, which has triggered expectations of a narrowing interest rate differential between Japan and the U.S.

In the upcoming overseas markets, the UK will be closed for the Summer Bank Holiday. Economic indicators scheduled for release include Germany’s Ifo Business Climate Index (August) and the U.S. Durable Goods Orders (July preliminary figures). The German Ifo Index is expected to be 86.0, down from the previous 87.0. U.S. Durable Goods Orders are anticipated to recover to +4.9% from -6.7% last month, but are expected to show no change on a month-to-month basis excluding transportation equipment.

Additionally, San Francisco Fed President Daly is scheduled to appear on Bloomberg TV. As the summer holiday season comes to a close, there may be remarks from ECB officials and others.

Geopolitical risks might also come into focus with reported retaliation between Hezbollah and Israel, and Ukraine’s cross-border attacks into Russian territory. Attention should be paid to the movements of crude oil and gold prices.

For the week as a whole, key events include the U.S. PCE Deflator and weekly initial jobless claims scheduled for the 30th. These indicators are closely watched by the U.S. monetary authorities as they relate to inflation and the labor market, potentially influencing the extent of the rate cut in September.

Given the significant movements in USD/JPY, I plan to target selling on rebounds.