USD/JPY has posted slight gains on Wednesday. In the North American session, the pair is trading at 110.86, up 0.23% on the day. On the release front, Japan posted a rare trade deficit in January, with a reading of JPY -37 trillion. The markets are bracing for further weak releases on Wednesday. Flash Manufacturing PMI is forecast to come in at 50.4, pointing to stagnation. As well, All Industries Activity is projected to post a decline of 0.2%. In the U.S., the sole event is the Federal Reserve minutes from the January meeting. Thursday will be busy, with the U.S. posting durable goods and unemployment claims.

The Federal Reserve has turned dovish in 2019, after aggressively raising rates four times in 2018. If recent comments from Fed policymakers are any indication, the minutes from the January policy meeting are also likely to be dovish in tone. The January rate statement discarded previous pledges of “further gradual increases” in interest rates, and said it would be “patient” before any further hikes. The current Fed projection calls for two rate hikes this year, but that is subject to change, based on the strength of the U.S. economy. The markets have priced in a hold on rates for the near-term, with little expectation of a rate hike in the first half of the year.

There is increased optimism over the U.S-China trade spat, and improved risk appetite could weigh on the safe-haven yen. Chinese and U.S. officials are now conducting a fourth round of talks, as the sides look to ease trade tensions after months of tit-for tat tariffs which have hurt global growth and rocked the stock markets. Treasury Secretary Steven Mnuchin joined the talks last week and called the negotiations “productive”. The U.S. has threatened to impose stiff new tariffs on March 1, but on Tuesday, President Trump said that the talks were going well and that March 1 was not a “magical day”. If the March 1 deadline is removed, we could see the yen lose ground.

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