Yen Sinks as Fed Officials Talk Down QE Reduction Bets

DailyFX

The Japanese Yen sank amid a recovery in risk appetite in Asia after Fed officials poured cold water on QE reduction expectations. More of the same is hinted ahead.

Talking Points

  • Japanese Yen Sinks as Fed Officials Talk Down QE Reduction Speculation
  • German CPI Increase May Boost Euro Amid Fading ECB Stimulus Hopes
  • S&P 500 Futures Point to Risk Appetite Well-Supported into Week-End

The Japanese Yen underperformed in overnight trade, down as much as 0.8 percent on average against its top counterparts, as swelling risk appetite buoyed demand for carry trades funded in the perennially low-yielding currency. The MSCI Asia Pacific regional benchmark stock index rose 2 percent as investors cheered on comments from New York Fed President Bill Dudley and Fed Governor Jerome Powell that poured cold water on stimulus reduction bets.

Dudley said QE may be prolonged as-is if the economy falls short of the central bank’s outlook, adding growth may “diverge significantly” from the FOMC forecast. Powell added that the timing for reducing asset purchases is “in no way” predetermined. Commodity prices likewise tracked higher as traders greeted the possibility that Fed support may not be withdrawn as quickly as previously expected. Cycle-sensitive crude oil prices followed shares higher while gold and silver edged higher as the prospect of longer-lasting QE stabilized anti-fiat demand.

S&P 500 futures are pointing firmly higher in early European trade, pointing to more of the same through the end of the trading week. The preliminary set of June’s German CPI figures headlines the economic calendar. Expectations suggest the headline inflation rate rose to 1.7 percent, a five-month high. The result may weigh on the probability for expanded ECB stimulus in the minds of investors and boost the Euro, where prices have been tracking closely in line with the front-end yield spread (a gauge of the markets’ monetary policy outlook). Comments from Fed Governor (and sitting FOMC member) Jeremy Stein headline the day’s speaking schedule.

Capitalize on Shifts in Market Mood with the DailyFX Speculative Sentiment Index

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Building Permits (MoM) (MAY)

1.3%

-3.9%

21.0%

23:05

GBP

GfK Consumer Confidence Survey (JUN)

-21

-21

-22

23:15

JPY

Nomura/JMMA Manufacturing PMI (JUN)

52.3

-

51.5

23:30

JPY

National CPI (YoY) (MAY)

-0.3%

-0.4%

-0.7%

23:30

JPY

National CPI Ex-Fresh Food (YoY) (MAY)

0.0%

0.0%

-0.4%

23:30

JPY

National CPI Ex Food, Energy (YoY) (MAY)

-0.4%

-0.3%

-0.6%

23:30

JPY

Household Spending (YoY) (MAY)

-1.6%

1.3%

1.5%

23:30

JPY

Jobless Rate (MAY)

4.1%

4.0%

4.1%

23:30

JPY

Job-To-Applicant Ratio (MAY)

0.9

0.9

0.89

23:30

JPY

Tokyo CPI (YoY) (JUN)

0.0%

0.1%

-0.2%

23:30

JPY

Tokyo CPI Ex-Fresh Food (YoY) (JUN)

0.2%

0.2%

0.1%

23:30

JPY

Tokyo CPI Ex Food, Energy (YoY) (JUN)

-0.4%

-0.3%

-0.3%

23:50

JPY

Industrial Production (MoM) (MAY P)

2.0%

0.2%

0.9%

23:50

JPY

Industrial Production (YoY) (MAY P)

-1.0%

-2.4%

-3.4%

23:50

JPY

Large Retailers' Sales (MAY)

-0.4%

0.2%

-2.3%

23:50

JPY

Retail Trade s.a. (MoM) (MAY)

1.5%

0.7%

0.6%

23:50

JPY

Retail Trade (YoY) (MAY)

0.8%

0.0%

-0.2%

1:30

AUD

Private Sector Credit (MoM) (MAY)

0.3%

0.3%

0.3%

1:30

AUD

Private Sector Credit (YoY) (MAY)

3.0%

2.9%

3.1%

1:35

CNY

MNI Flash Business Sentiment Indicator (JUN)

53.7

-

56.7

3:00

NZD

Money Supply M3 (YoY) (MAY)

6.2%

-

6.5%

4:00

JPY

Vehicle Production (YoY) (MAY)

-6.2%

-

-6.5%

5:00

JPY

Housing Starts (YoY) (MAY)

14.5%

6.1%

5.8%

5:00

JPY

Annualized Housing Starts (MAY)

1.027M

0.950M

0.939M

5:00

JPY

Construction Orders (YoY) (MAY)

26.0%

-

2.0%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

6:00

EUR

German Retail Sales (YoY)

0.4% (A)

2.7%

Medium

6:00

EUR

German Retail Sales (MoM)

0.8% (A)

-0.1%

Medium

6:00

GBP

Nationwide House Prices s.a. (MoM)

0.3% (A)

0.4%

Medium

6:00

GBP

Nationwide House Prices n.s.a. (YoY)

1.9% (A)

1.1%

Medium

7:00

CHF

KOF Swiss Leading Indicator

1.16 (A)

1.1

Medium

8:30

GBP

Index of Services (MoM)

0.1%

0.2%

Low

8:30

GBP

Index of Services (3Mo3M)

1.1%

0.6%

Low

12:00

EUR

German CPI (MoM) (JUN P)

0.0%

0.4%

High

12:00

EUR

German CPI (YoY) (JUN P)

1.7%

1.5%

High

12:00

EUR

German CPI - EU Harmonised (MoM) (JUN P)

0.1%

0.3%

Low

12:00

EUR

German CPI - EU Harmonised (YoY) (JUN P)

1.8%

1.6%

Low

Critical Levels:

CCY

SUPPORT

RESISTANCE

EURUSD

1.3006

1.3089

GBPUSD

1.5192

1.5336

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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