After the Bank of Japan decided to keep its monetary policy unchanged, the Japanese Yen (JPY) faced bearish pressure, resulting in the currency trading at its weakest level in over three decades against the US Dollar. The BoJ maintained the key interest rate target range at 0%-0.1% and removed the reference to buying about 6 trillion JPY worth of Japanese Government Bonds per month. BoJ Governor Kazuo Ueda suggested that the possibility of prolonged JPY weakness was not zero and acknowledged the positive impact of exchange rates on the economy.
On the other hand, the US Dollar saw strength following the BoJ’s decision, with the USD/JPY pair trading at levels not seen since May 1990 above 156.50. The US Bureau of Economic Analysis was set to release the Personal Consumption Expenditures (PCE) Price Index data for March, which is the Federal Reserve’s preferred gauge of inflation. The US core PCE inflation was expected to indicate firm price pressures, leading to a delay in Federal Reserve rate cut bets.
Market Reaction and Currency Performance
The Japanese Yen remained heavily offered near a multi-decade low after BoJ Governor Ueda’s comments. The currency was weakest against the Australian Dollar, as shown in the percentage change table of major currencies. The heat map reflected percentage changes of major currencies against each other, indicating the relative strength and weakness of different currencies. The USD Index (DXY) closed negatively following softer US economic expansion in the first quarter but managed to limit losses due to an increase in the GDP price deflator.
In the wake of these events, US stock index futures recorded strong gains, signaling an improvement in risk sentiment. The EUR/USD pair continued to push higher, registering its highest daily close in over two weeks, while GBP/USD extended its rebound over three consecutive days. Gold prices edged higher but struggled to gather bullish momentum amidst rising US yields, with XAU/USD trading in the green above $2,340.
The Core Personal Consumption Expenditures (PCE) Index
The Core PCE Price Index measures changes in the prices of goods and services purchased by US consumers on a monthly basis. It is the Federal Reserve’s preferred gauge of inflation, with the YoY reading comparing prices from the reference month to the same month a year earlier. The core reading excludes volatile components like food and energy to provide a more accurate assessment of price pressures. A high reading typically favors the US Dollar, while a low reading has a bearish impact on the currency.
The Bank of Japan’s decision and the subsequent market reactions have had a notable impact on the Japanese Yen and the US Dollar. The Yen’s bearish pressure, coupled with the strength of the US Dollar and the release of key economic data, have influenced currency performance and market trends. Traders and investors must closely monitor these developments to make informed decisions in the volatile forex market.