Dollar higher, yen under pressure but stocks feel good

BoJ meeting held no surprises

The yen is under pressure again today as the Bank of Japan kept its interest rate unchanged and decided to trim its bond buying programme but postponed the announcement of the new size of bond purchases until the July meeting. Governor Ueda tried to moderate the market reaction at the press conference, but the market is mostly interested in actual announcements.

As a result, the US dollar/yen pair is trading higher and much closer to the late April intervention levels. Should this upward pressure continue, BoJ officials might not hesitate to act, although their usual plan is to verbally intervene before starting the calls to yen dealers.

Dollar in charge again

The dollar has almost completed a 150bps round trip against the euro, erasing most of the underperformance recorded on Wednesday due to the US CPI report and the moderately hawkish Fed meeting. The market is currently assigning a 72% probability of a rate cut in September, but as made evident by Chairman Powell, the data has to justify the decision.

The calendar is lighter today, but the market is expected to exploit any news that supports its cause. Therefore, today’s import and export price indices could, on the margin, be worth a few pips in euro/dollar. But the market’s attention will probably be on the preliminary University of Michigan consumer sentiment print and the various Fed speakers. The former is a key measure of consumer appetite, and it would be interesting to see if the recent correction has legs. Interestingly, Fed doves Goolsbee and Cook will be on the wires today.

Euro remains driven by political developments

The euro continues to suffer from political shenanigans following the European election results. The market’s focus remains on France with the first round of the parliamentary election being just two weeks away. Political instability brings back memories of the European crises in the 2010s, but the economic situation is clearly much better now.

US equities continue their journey higher

In the meantime, US stock markets continue to record new highs and to diverge from the key European equity indices. The Nasdaq is up 3% this week, its best weekly performance since late April, and 16% higher thus far in 2024. On the contrary, both the DAX 40 and the CAC 40 indices remain on the back foot with around 3% losses this week. For the French index, this month could be the weakest one since May 2023.

Football in focus

Markets aside, the 2024 European Football Championship starts today in Germany. It will probably be an “action-packed” period for sports fans since the 2024 Summer Olympic Games, which will be held in Paris, France, also commences in late July. Apart from their aims on the pitch, both Germany and France aim to benefit economically from hosting major sporting events amidst the political crises.

There is usually a positive impact on consumer spending and tourism revenues not only during such events but also in subsequent years. This positive impact could prove more potent if the national team wins the European Football Championship trophy. The ECB will probably be on the lookout for any impact on retail sales and overall consumer appetite.