· The dollar jumped against the yen on Tuesday, after the Bank of Japan said it intends to keep rates low for an “extended period of time,” and the greenback was firm against a basket of peers ahead of the conclusion of the U.S. Federal Reserve’s two-day monetary policy meeting on Wednesday.
The dollar was 0.69 percent higher against the yen JPY=, on pace for its best day in nearly three weeks, and was set to finish the month 1 percent higher, its second straight monthly gain.
The U.S. dollar index .DXY, which measures the greenback against a basket of six currencies, was up 0.19 percent at 94.504, as investors await the end of the Federal Open Market Committee meeting.
“In particular, investors will be on the lookout for any changes to the bank’s outlook for growth or inflation and any increased concern related to protectionism or trade uncertainty,” said Esiner.
· “Buying sentiment towards the dollar could receive a boost if the central bank strikes a hawkish tone,” Lukman Otunuga, research analyst at futures brokerage FXTM in London, said in a note.
· On Tuesday, data showed U.S. consumer spending increased solidly in June, while inflation rose moderately. Other data showed employers boosting benefits for workers in the second quarter, but wage growth slowed.
With savings at lofty levels and lower taxes increasing take-home pay for some workers, consumer spending is likely to remain strong this year and allow the Federal Reserve to continue gradually raising interest rates.
· The U.S. and China are trying to restart talks aimed at averting a full-blown trade war between the world’s two largest economies, two people familiar with the effort said.
Representatives of U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He are having private conversations as they look for ways to reengage in negotiations, according to the people who spoke about the deliberations on condition of anonymity.
U.S. stocks closed higher as the prospects for an easing in trade tensions lifted industrial shares, with Boeing Co., Caterpillar Inc. and 3M Co. all adding more than 1 percent.
· The Chinese yuan dropped in offshore trade and the Australian dollar slipped on Wednesday on a report the U.S. administration will propose raising its planned tariffs on $200 billion Chinese imports to 25 percent.
The yuan dropped 0.35 percent in early trade to 6.8271 per dollar after Bloomberg reported on Washington’s new tariff plans, which would heighten trade tensions with China.
· China will keep its economic growth within a reasonable range and achieve this year’s target despite challenges, the state-run Xinhua news agency said on Tuesday as a trade war with the United States intensifies.
China’s economic growth slowed slightly to 6.7 percent in the second quarter, but was still above the official 2018 growth target of about 6.5 percent.
However, the trade row with Washington, a slowing domestic property market and reduced outbound shipments have sharply increased the risks to China’s economic outlook.
· The U.S. economy is growing at a 4.7 percent annualized rate in the third quarter following the government’s first reading of the second-quarter gross domestic product at 4.1 percent, the Atlanta Federal Reserve’s GDPNow forecast model showed on Tuesday.
· The BOJ said it would keep long-term and short-term interest rates for an extended period of time, taking into account consumption tax hike planned in October 2019, leading traders to think any hikes will be off the table at least until then.
BOJ Governor Haruhiko Kuroda said the central bank would allow the 10-year Japanese government bond to trade 0.2 percentage point away from zero percent, compared to just 0.1 percentage point in the past.
But analysts say Japanese bond yields are likely to stay low in the near-term, capping the yen.
· The Bank of England should raise interest rates this week but also tell the public it will be ready to make a U-turn if Brexit talks sour or trade tensions with the United States escalate, a leading economic think tank said on Wednesday.
The National Institute of Economic and Social Research (NIESR) stuck to its forecast for British economic growth of 1.4 percent this year and 1.7 percent next year, though this assumes a softer Brexit than Prime Minister Theresa May is aiming for.
· Oil prices fell on Tuesday, closing out the largest monthly decline in two years on supply worries after OPEC output reached a 2018 high in July, overshadowing reports that the United States and China might reopen trade talks that could boost demand.
October Brent crude futures fell $1.34 to settle at $74.21 a barrel. The September contract, which expires later on Tuesday, settled at $74.25. U.S. crude futures fell $1.37, or nearly 2 percent, to settle at $68.76.
Brent lost more than 6 percent in July, while U.S. crude futures slumped about 7 percent, the biggest monthly decline for both benchmarks since July 2016.
Reference: Reuters, Bloomberg
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