The JOLTS survey showed the strength of the job market. The number of vacancies rose to over 9.6 million, which turned out to be higher than expected. The dollar strengthened and the yields on American debt rose again. The indices from Wall Street and Europe ended the day with substantial losses, with Nasdaq Composite falling by 1.9 percent and Dax down by 1.1 percent. After the rise of the USD/JPY currency pair, there was likely an intervention, which resulted in a dynamic drop in the rate to the level of 147.30. Japanese officials, however, refused to confirm any intervention on the FX market.
The dollar is on an upward path and subsequent figures only help to continue its appreciation. On Monday, the positive ISM result for the industry had a favourable impact on the USD. Yesterday, the surprise result of the JOLTS survey again supported the currency. In addition, we heard several comments from the Fed. Raphael Bostic repeated the well-known sentence that interest rates in the US should remain high for a long time. Cleveland Fed President Loretta Mester went even further and highlighted the possibility of another increase this year. As a result, the EUR/USD rate is still under the 1.05 level and has been remaining below it for a longer time.
Today, we will learn another set of data. The most important seems to be the ISM report for services, but I assume that investors will not ignore the ADP reading, as we will receive government data on the labour market situation in two days and the market will certainly want to position itself for it.
The current picture of the market is a strong dollar, rising US debt yields, and falling indices, which fear that the restrictive monetary policy will stay longer.
After several weeks of the USD/JPY currency pair slowly approaching the 150.00 level, it finally achieved this level yesterday. Shortly afterwards, we saw a sharp drop towards 147.00. However, there was no official announcement of intervention from the Ministry of Finance or the Bank of Japan. This morning, following the reaction to these falls, the currency pair is depreciating again. Of course, it can be assumed that simply some investors fearing intervention got rid of their long positions on this currency pair yesterday, believing that history could repeat itself.
Ultimately, however, interventions change little in the fundamental situation. As long as the US economy appears to be very solid (which gives the Fed an argument to keep rates high), and the BoJ does not aim to exit from ultra-expansive monetary policy, there are strong arguments for the upward trend of USDJPY.
The Monetary Policy Council will make another decision on monetary policy today. Remember that in September, the cost of money in Poland was reduced by as much as 75 basis points, which led to a snowball sale of the zloty. The consensus of Bloomberg and PAP predicts a drop this time of only 25 bp. The unpredictability of the MPC’s decision means that there is a high risk that the zloty will be under pressure again today and will depreciate. A stronger move cannot be ruled out.
Łukasz Zembik Oanda TMS Brokers
