The week of 23rd-27th September 2024- USDJPY strengthens in Carry Trade rally

Last week the USDJPY strengthened in a Carry Trade rally despite the Fed cutting US interest rates by 50bp, an uptick in Japanese inflation and the Bank of Japan keeping interest rates on hold! Some may find this incredulous as only in July did Japanese Ministry of Finance currency intervention and a Bank of Japan interest rate hike cause turmoil in the markets as the yen rapidly strengthened, the carry trade unwound and equity markets recoiled!?

Perhaps the 50bp rate cut by the Fed and subsequent stock market rally is a little bit premature! Bank of England Governor Bailey acknowledged on Friday (after the UK kept interest rates on hold on Thursday) that “longer-term inflation pressures were easing but further interest rate cuts would not be rushed because it was still too soon to be sure inflation was beaten.”- (source Reuters). There is nothing to say that the US is winning the fight either, and the latest Japanese metrics point to a stubborn problem. It may very well be that we should be focussing on Japan as the bellwether for currency moves as when the Bank of Japan acts, the World reacts!?

To this week and we have a Reserve Bank of Australia interest rate decision, Australian CPI, a Swiss National Bank interest rate decision and US Consumer Confidence, US GDP and US PCE figures to look forward to.?

We start Tuesday morning with an RBA interest rate decision; analysts’ consensus is for “unchanged” at 4.35%. Australian inflation is still above 3%. Australian monthly CPI, out on Wednesday morning, should confirm this; the mean forecast is for 3.1%. The Swiss National Bank is widely expected to cut interest rates to 1% on Thursday morning.?

In the US, Consumer Confidence is the first main data release of high importance; Tuesday’s number should be more or less in line with last month’s at 103.5. US GDP, on Thursday is expected to print 3% for Q2. Fed Chair Powell will hope that US Core PCE on Friday will print 2.6% or lower.?

Good Luck and Good trading!

Ben Robson?

Ben Robson is Head of Institutional E-FX at Swiss Finance Corporation. He is also the Amazon Best Selling Author of Currency Kings – How Billion traders Made their Fortune Trading Forex. McGraw Hill