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Yen edges higher as markets mull Ueda nomination

Home >  Daily Market Digest >  Yen edges higher as markets mull Ueda nomination

Written by:
Myrsini Giannouli

21 February 2023
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Important calendar events

  • JPY: Flash Manufacturing PMI
  • GBP: Public Sector Net Borrowing, Flash Manufacturing PMI, Flash Services PMI, CBI Industrial Order Expectations
  • EUR: French, German, and Eurozone Flash Manufacturing PMI, French, German, and Eurozone Flash Flash Services PMI, German ZEW Economic Sentiment, EU ZEW Economic Sentiment
  • USD: Flash Manufacturing PMI, Flash Services PMI, Existing Home Sales


Monday was a Bank Holiday in the US in observance of President’s day and the dollar exhibited low volatility. The dollar index remained stable, fluctuating around the 103.9 level. US Treasury yields remained steady at last week’s closing levels, with the US 10-year bond yielding 3.8%. 

US inflation data last week showed that price pressures in the US remain high and are not easing at the pace anticipated. US headline inflation in January dropped to 6.4% year-on-year versus the 6.2% expected. This represents a marginal cooling from December’s 6.5% print. PPI data also surprised markets to the upside. The monthly PPI for January rose by 0.7% against expectations of a 0.4% raise and a 0.2% drop in December. 

January’s CPI and PPI inflation prints illustrate the danger of inflation becoming entrenched. Sticky inflation may induce the Fed to rethink its recent dovish pivot. The Federal Reserve raised interest rates by only 25 basis points at its February meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. 

Rate hikes have become less aggressive and may continue at their current pace, but the Fed might raise interest rates for longer than previously expected. This means that there are likely still a couple of rate hikes up ahead, which may provide support for the dollar. Current market odds lean towards further tightening in the upcoming Fed meetings and an increase in interest rates up to 5.25%.

Fed Chair Jerome Powell has stated that the disinflation process has begun but warned that it still has a long way to go. The Fed’s stance appears to be cautious, reinforcing the notion that the Fed’s decisions will be based strongly on disinflation rates and the state of the US economy. 

The US economy is expanding at a higher rate than anticipated, as US GDP for Q4 of 2022 grew by 2.9% against expectations of a 2.6% growth. The US is likely headed for an economic ‘soft landing’ and recession concerns ease. 

Flash Manufacturing and Services PMI data on Tuesday may cause volatility in dollar price ahead of the PCE inflation data later in the week. 



The Euro traded sideways against the dollar on Monday, with EUR/USD oscillating around 1.069 with low volatility. If the currency pair goes up, it may encounter resistance near 1.080. If the EUR/USD pair declines, it may find support at 1.061. 

EU Economic Forecasts indicate that the EU economic outlook appears to be improving, with an upgraded growth forecast for 2023. The EC lifted their growth outlook for 2023 to 0.9%, indicating that the Eurozone will narrowly avoid entering recession and the economy is slowly expanding. Inflation expectations were also downgraded, with headline inflation now expected to fall to 5.6% in 2023. Flash EU GDP data for the final quarter of 2022 confirmed the EC’s forecast, showing that the Eurozone economy expanded by 0.1%. 

The ECB raised interest rates by another 50 bp at its February meeting, bringing its main refinancing rate to 3.0%. ECB President Christine Lagarde has emphasized that the central bank aims to bring inflation down to its 2% target. Lagarde confirmed that another 50-bp rate hike would follow at the next monetary policy meeting in March, after which the ECB would re-evaluate its policy. Market odds are currently favoring an increase of the ECB refinancing rate to 4.0% by June.

EU inflation rates are decreasing, but they are still far from the ECB’s 2% goal. Final EU headline inflation dropped to 8.5% year-on-year in January from a 9.2% print in December, indicating that Eurozone inflation is cooling. The continued drop in inflation signals that the ECB’s efforts to tame inflation are bearing fruit. Price pressures in the Eurozone remain high though, and interest rates need to rise to combat inflation.

Several economic activity data are scheduled to be released on Tuesday for the Eurozone. Primary among those are Flash Manufacturing and Services PMI, which may provide information on the state of the Eurozone economy. 

EURUSD 1hr chart



The Sterling remained stable on Monday, which was a quiet day for markets. GBP/USD traded sideways, and the pair fluctuated slightly around the 1.204 level, as the US Bank Holiday contributed towards low market volatility. If the GBP/USD rate goes up, it may encounter resistance at 1.227, while support may be found near 1.191. 

Last week, CPI data showed that UK headline inflation cooled faster than anticipated in January. British CPI fell to 10.1% year-on-year in January from 10.5% in December. 

After last week’s optimistic inflation print, market odds are leaning towards a 25-bp rate hike at the BOE's next monetary policy meeting in March. Cooling inflation rates remove some of the pressure on the BOE to continue its economic tightening. The BOE raised interest rates by 50 bp at its February meeting, bringing the official bank rate to 4.0%. Markets are currently pricing in a 25-bp rate at the next BOE policy meeting. Several market participants though believe that the British central bank will pause rate hikes completely.

Recent GDP data showed that the British economy is slowing down. The British economy contracted by 0.5% in December, which was more pessimistic than the 0.3% expected. Preliminary GDP for the final quarter of 2022 showed stagnation, while GDP for 2022 came in at 4.1%. The IMF downgraded the UK’s growth forecast, predicting that the British economy will contract by 0.6% this year, which is also consistent with BOE forecasts.

The UK’s grim economic outlook limits policymakers’ ability to increase interest rates sufficiently to rein in inflation. The British economy is struggling, and policymakers must assess how much tightening it can withstand to bring inflation down.

UK Flash Manufacturing and Services PMI on Tuesday are important indicators of economic health and may affect the Sterling price.

GBPUSD 1hr chart



Japanese Yen edged higher on Monday as markets mulled over Ueda’s nomination for BOJ President. USD/JPY dipped, touching the 134 level. If the USD/JPY pair declines, it may find support near 131.2. If the pair climbs, it may find resistance at 135.1. 

The Yen was pushed down last week by expectations of the continued dovish policy after the announcement of the Japanese Government’s nomination for the post of BOJ Governor on Tuesday. As markets began to digest the news this week though, the Yen began to gain strength. 

Incumbent BOJ Governor Haruhiko Kuroda Kuroda is a staunch supporter of an ultra-loose monetary policy and his term in office expires in April. Japanese Prime Minister Fumio Kishida nominated former BOJ member Kazuo Ueda for the post of BOJ governor on Tuesday. Ueda is an academic economist, and his stance is seen as more pragmatic rather than ultra-dovish. 

Most market analysts consider that Ueda will likely not be in a hurry to unwind the BOJ’s ultra-easy policy, but as yet his intentions remain unclear. Ueda will appear before the Japanese government's lower house known as the Diet this Friday. Markets eagerly await his testimony for signs of a pivot in BOJ policy. 

Japanese policymakers maintained ultra-low interest rates at the BOJ’s January meeting, keeping the central bank’s refinancing rate at -0.10%. 

Preliminary GDP data for the final quarter of 2022 last week showed minimal economic expansion by 0.2%, falling short of expectations of 0.5% growth. The preliminary GDP Price Index on an annual basis printed 1.1% for 2022, mainly due to the high costs of imported energy. Japan’s economic outlook is poor, raising recession concerns for the world’s third-biggest economy.

BOJ Core CPI rose to 3.1% year-on-year, exceeding expectations of a 2.9% print. Inflation in Japan has gone above the BOJ’s 2% target, touching 40-year highs and putting pressure on businesses and households. National Core CPI for December was at 4.0%, rising above November’s 3.7% print. In addition, wages in Japan increased for the first time in nine months by 4.8% year-on-year in December. Increased price pressures and wages raise concerns of a wage-price spiral and may force the BOJ to pivot towards a more hawkish policy.

Flash Manufacturing PMI data are scheduled to be released on Tuesday for Japan and may affect the Yen ahead of the change in leadership in BOJ.

USDJPY 1hr chart


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Written by:
Myrsini Giannouli

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