Central bankers from leading global economies expressed the need for additional interest rate increases to bring inflation under control, due to strong labor markets.

  • Federal Reserve Chairman Jerome Powell said that while their current policy is restrictive, it may not be restrictive enough, indicating that the strong labor market is pulling the economy, leading to the projection of two more rate hikes this year. He expressed confidence in the resilience of the U.S. economy, supported by recent data. While Powell acknowledged a significant probability of an economic downturn, he clarified that this is not the most probable outcome. The desired economic softening is underway, although progress is slower than anticipated.
  • Both European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey highlighted that tight labor markets were causing wage increases, further adding to inflationary pressures.
  • Lagarde admitted the potential underestimation of the economy's resilience and acknowledged that the policy transmission might be slower than before due to the prevalence of fixed-rate mortgages. Lagarde noted that the second quarter was unfavorable for manufacturing and expressed skepticism regarding a strong recovery from this sector. Furthermore, she voiced concerns about the absence of sufficient tangible evidence of a drop in core inflation. If the current economic baseline holds steady, she indicated a likely interest rate hike in July, but said September was still data dependent.
  • BOE's Bailey asserted his belief that it would not be appropriate to change the inflation target. He expressed surprise at the UK's robust position and highlighted noticeable signs of sustained inflation in the country. He asserted, the Bank's commitment, and stated they would take all necessary steps to bring inflation back to its target.
  • Meanwhile, Bank of Japan Governor Kazuo Ueda stated that they were keeping policy unchanged, despite Japan seeing its highest inflation level in four decades. Policymakers are also closely monitoring how quickly the effects of higher interest rates are impacting their economies. Ueda expressed concern about smaller regional Japanese banks that are experiencing notable valuation losses. He noted signs of rising inflation expectations, although these are not yet fully aligned with their target. Ueda stated that Japan's economy is set to expand slightly above potential for some time, and added that wage inflation consistent with the inflation target is well above 2%. He suggested that a confident outlook on the second part of the inflation forecast could justify reconsidering policy changes. .

Powell, Lagarde and Bailey all agreed that while headline inflation rates have dropped, they are still facing the challenge of bringing inflation to a 2% target due to persistent domestic inflation pressures.

The USD moved higher through the discussion and is ending the day as the strongest of the major currencies. The NZD is the weakest followed closely by the AUD. In the Asian Pacific session, CPI inflation in Australian came in lower than expected leading to a sharp fall in both the AUD and the NZD.

Forex
The strongest to the weakest of the major currencies

Technically:

  • The EURUSD fell back below its 200 and 100-hour MAs at 1.0931 and 1.0923 on its way to support near 1.0891 (low reached 1.0896). The corrective rally in the US afternoon session found sellers against the 100-hour MA at 1.0931. Stay below is more bearish in the new trading day.
  • The USDJPY moved to a new high for 2023 - and going back to November 2022 - at 144.61. The price corrected lower, reaching a low of 144.11 before moving back higher. The pair is trading at 144.44 heading into the close. On a break of the high for the day at 144.61, the pair would target a topside channel trend line on the hourly at 144.877 and move higher. The rising 100-hour MA at 143.60 would still need to be broken to increase the bearish bias in the pair. The price has not closed an hourly bar below that MA since June 14 when it was down at 139.53, nearly 500 pips ago.
  • As mentioned, the AUDUSD was one of the weakest currency pairs today. The pair fell 1.26%, only surpassed by the NZDUSD fall of 1.44%. Technically, the price fell below a key swing area between 0.6637 and 0.6652. That area will be eyed as the risk-defining level for sellers into the new day. On the downside getting below 0.6558 – 0.6566 increases the bearish bias.
  • The USDCAD moved above its 200-hour moving average for the first time since June 1. The high priest extended to a swing area between 1.3271 and 1.3285. The high price for the day reached between those levels at 1.3276. The subsequent corrective fault of the price to a US session of 1.3239, but is modestly higher into the close at 1.3253. Getting above 1.3285 is needed to give the bars more confidence. The 38.2% retracement of the move down from the May high cuts across at 1.3322. Getting above that retracement level is the minimum if the buyers are to take more control.

In other markets today:

  • Crude oil moved higher after a much greater-than-expected inventory drawdown of over 9 million barrels in the current weekly inventory data from the EIA. The current price is trading at $69.14 up $1.44 or 2.14%.
  • Gold is trading down -$5.62 or -0.29% at $1907.90 as it reacts to the higher dollar. The low price reached $1902.76.
  • Silver is trading down -$0.15 or -0.69% at $22.67
  • Bitcoin declined modestly to $30,072 from a level of around $30,110 at the start of the US session

In the US debt market, yields are lower despite the more "hawkish" central bankers:

  • 2-year yield 4.714%, -5 basis points
  • 5-year yield 3.970%, -6.4 basis points
  • 10 year 3.713%, -5.4 basis points
  • 30 year 3.811%, -2.8 basis points

The US treasury auctions office 7 year notes without any trouble as foreign demand was strong.

In the US stock market today, the Dow Jones was lower. The S&P was near unchanged and the NASDAQ index rose modestly. The final numbers are showing:

  • Dow industrial average -74.08 points or -0.22% at 33852.67
  • S&P index -1.55 points or -0.04% at 4376.85
  • NASDAQ index +36.07 points or 0.27% at 13591.74.

Shares of Nvidia fell sharply as they reacted to reports that the US would ban the sale of certain Nvidia AI chips to China on security concerns. Its shares fell $-7.59 or -1.81% at $411.17. Adobe shares were also lower by $6.84 or -1.40% at $482.24.