The USD is little changed with all the major currencies within 0.12% of the closing level from yesterday. The high to low trading ranges are also confined.
- EURUSD: 38 pips
- USDJPY: 30 pips
- GBPUSD: 40 pips
- USDCHF: 18 pips
- USDCAD: 33 pips
- AUDUSD: 35 pips
- NZDUSD: 40 pips
Looking at the 3 major currency pairs – the EURUSD, USDJPY and GBPUSD – the prices are all within 0.04% of unchanged on day with modest trading ranges of less than 40 pips in each.
Overnight, the Bank of Japan delivered another rate increase:
- BOJ raised rates 25 basis points to 1.00%
- Highest policy rate in more than 30 years
The Bank of Japan raised its policy rate by 25 basis points to 1.0%, the highest level since 1995, while signaling that additional rate hikes remain possible as inflation pressures build. The BOJ said Japan’s economy is evolving largely as expected, with the risk of a significant slowdown diminishing and inflation projected to run clearly above its 2% target. Policymakers highlighted the faster-than-expected pass-through of higher oil prices into consumer prices and warned of upside inflation risks. At the same time, the BOJ announced it will pause its bond purchase tapering program from April 2027, fixing monthly JGB purchases at around ¥2 trillion. While the move to higher rates is clearly hawkish, the decision to halt further tapering may help limit upward pressure on long-term yields. Overall, the message was that policy is still moving toward further tightening
Despite the rise, the pair remains above the 160.00 level
The Reserve Bank of Australia also six latest interest-rate decision, decided to leave left its cash rate unchanged at 4.35%, as expected, with a unanimous decision. The RBA stressed that both headline and underlying inflation remain too high, while uncertainty around the economic outlook remains elevated, particularly due to ongoing Middle East tensions and their impact on global energy prices.
The central bank warned that higher oil prices could keep inflation elevated for longer and said it remains focused on preventing those pressures from becoming embedded in the economy. While the statement retained a hawkish tone, some of the stronger inflation language from May was softened, suggesting the RBA is unlikely to raise rates again anytime soon but is also not close to considering rate cuts. The Australian dollar showed little reaction, with AUDUSD holding near 0.7050 after the decision.
The FOMC rate decision will be announced tomorrow at 2 PM. The Fed is expected to keep rates unchanged at Kevin Warsh’s first meeting as the head of the central bank. What will be said and released is another story. One of the themes is that he will want Fed officials to be more quiet. Warsh comes in with a dovish bias toward rates. However, he has advocated for gradually reducing the Federal Reserve’s massive balance sheet (which is hawkish), reexamining the central bank’s approach to inflation, and reshaping how monetary policy is communicated and implemented.
On inflation, Warsh likes the Dallas Fed Trimmed Mean PCE Inflation Rate as an inflation measure. It was developed by the Federal Reserve Bank of Dallas and attempts to identify the underlying trend in inflation by removing the most extreme price increases and decreases each month before calculating the average.
How it works
Instead of looking at all prices equally, as the standard PCE inflation measure does, the Dallas Fed:
- Ranks all PCE price changes from lowest to highest
- Trims away the most extreme price declines and increases
- Calculates inflation using the middle portion of the distribution
For example, if gasoline prices jump 25% in a month or airline fares fall 15%, those extreme moves may be excluded from the calculation.
The goal is to answer:
“What is inflation doing beneath the noise?”
Will Warsh speak to that measure in his commentary? The current trimmed mean rate is 2.3%. The Core PCE is at 3.3%.
In the Middle East, President Trump stated that the Strait of Hormuz should be fully reopened by Friday, coinciding with a planned signing ceremony in Switzerland between U.S. and Iranian officials. However, reports suggest that restoring normal shipping operations could take longer, with some estimates pointing to as much as two weeks before full capacity returns.
Key elements reportedly included in the framework agreement:
- Extension of the current ceasefire by 60 days
- Reopening of the Strait of Hormuz
- Removal of the U.S. blockade on Iranian ports
- Gradual normalization of energy exports
Markets remain sensitive to any signs that negotiations could encounter obstacles. An interesting side note Israel Hayom US Pres. Trump is considering firing senior officials who opposed the nuclear agreement with Iran including war Sec. Pete Hegseth and CIA director John Ratcliff. HMMMM. I am not sure that will happen, but it is interesting.
The major US indices are continuing to move higher with the Dow industrial average yesterday trading in closing at a new all-time high. The futures are planning a 88 point gain in the Dow 30 this morning. The S&P futures are implying a gain of 8.21 points. The NASDAQ futures are implying a gain of 67 points. Shares of SpaceX continue their run to the upside was shares currently training over $200 but off premarket highs. The current prices trading at $202.71 up 5.28% on the data
in the US that market, yields are lower:
- 2 year yield 4.0558%, -0.8 basis points.
- 5 year yield 4.166%, -1.9 basis points
- 10 year yield 4.445%, -2.3 basis points
- 30 year yield 4.945%, -2.4 basis points.
In other markets:
- Crude oil is trading down close to three dollars at $77.82 and near the low for the day.
- Gold is trading up $34 or 0.81% at $4343.87
- Silver is trading up $0.70 or 1.0% at $70.67
This article was written by Greg Michalowski at investinglive.com.
