Strong US Retail Sales Boost USD/JPY Rebound
The USD/JPY pair experienced a notable rebound following the release of strong US retail sales data in August. The control group showed a 0.3% increase, in line with expectations. This positive economic indicator contributed to the renewed strength of the US dollar against the Japanese yen.
Key Economic Indicators in North America
In Canada, the August CPI came in at 2.0%, slightly lower than the expected 2.1%. Meanwhile, the US September NAHB home builder sentiment surpassed expectations at 41 compared to the anticipated 40. Additionally, US business inventories for July exceeded forecasts with a 0.4% growth, while industrial production in August saw a significant increase of 0.8% versus the expected 0.2%.
Global Economic Developments and Market Trends
The European Central Bank’s Villeroy commented on France’s goal to reduce its deficit to 3% of GDP by 2027, deeming it unrealistic. In the financial sector, JPMorgan was reportedly in discussions with Apple regarding their credit card business. Furthermore, Goldman Sachs raised its estimate for Q3 growth to 2.8%, and the Atlanta Fed’s GDPNow projection for Q3 stood at 3.0%.
Lebanon faced a tragic incident with approximately 2,800 individuals injured, including 200 in critical condition, due to a series of bombings. Meanwhile, tensions escalated in the Middle East as Israel prepared for potential conflict with Hezbollah. In New Zealand, the GDT price index experienced a modest increase of 0.8%.
Market Performance and Currency Movements
Gold prices declined by $14 to $2568, while US 10-year yields rose by 2.6 bps to 3.65%. WTI crude oil prices climbed by $1.26 to $71.37. The S&P 500 continued its positive streak, gaining 0.1% for the seventh consecutive day. Among currencies, the Australian dollar and US dollar outperformed, while the Japanese yen lagged behind.
The US dollar exhibited strength across various fronts on Tuesday as market participants awaited the FOMC decision. The slightly better-than-expected retail sales report added to the uncertainty surrounding the debate between a 50 or 25 basis point rate cut. With a 65% probability assigned to a 50 bps cut, bond yields and the dollar saw an uptick in response to the data.
The euro and pound both weakened against the US dollar, with the euro dropping to 1.1120 from 1.1140 and the pound falling to 1.3160 from 1.3200. Antipodean currencies also experienced losses, partly influenced by a pullback in stock markets. Despite initial gains in S&P 500 futures, the index ultimately traded flat with brief periods of decline.
The most significant movement of the day occurred in USD/JPY, which surged to 142.27 from 140.50 amid ongoing bullish sentiment towards the US dollar. Traders appeared to cover their short positions in the dollar ahead of the upcoming Fed decision, resulting in a three-candle reversal pattern in the currency pair.
USD/CAD initially rose following lower-than-expected Canadian CPI data and the potential for a 50 bps rate cut in October. However, the pair retraced its gains later in the day, reflecting uncertainties surrounding the monetary policy outlook. Bank of Canada Governor Macklem emphasized the importance of growth figures in determining the pace of easing, with positive US economic indicators raising speculations on Canada’s economic trajectory.
