Market Updates

USD/JPY, IMF signals weaker yen

USD/JPY grinds higher around a fortnight high, taking rounds to the intraday top near 115.40 during the initial hours of Tokyo open on Friday. In doing so, the yen pair rises for the third consecutive day amid a rebound in the US Treasury yields, as well as the International Monetary Fund’s (IMF) push for easy Bank of Japan (BOJ) policies. It’s worth noting that Tokyo Consumer Price Index (CPI) for January eased to 0.5% versus 0.6% expected while the Tokyo CPI ex Food, Energy dropped below -0.3% forecast to -0.7% YoY. The Bank of Japan (BOJ) should consider further steps to make its ultra-easy monetary policy more sustainable, such as steepening the yield curve by targeting a shorter maturity than the current 10-year yield,” said an executive from the International Monetary Fund (IMF). IMF signals Fed tightening will exert downside pressure on yen, pushes Bank of Japan for more easy money policies.

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EURUSD

The euro dropped to two-year lows against the dollar on Friday after the U.S. nonfarm payrolls report for November showed that the U.S economy added jobs at the fastest rate in nearly three years, highlighting the diverging recovery in the U.S. and the euro zone. The Labor Department reported that the U.S. economy added 321,000 jobs in November, far more than the 225,000 forecast by economists and the largest monthly increase in almost three years. The report also showed that average hourly earnings rose by a larger than forecast 0.4% and were 2.1% higher on a year-over-year basis. EUR/USD fell to two-year lows of 1.2272 and settled at 1.2281, off 0.78% for the day. For the week, the pair was down 1.24%. The euro had moved broadly higher on Thursday after European Central Bank President Mario Draghi indicated that it would not embark on quantitative easing for now, saying the bank would reassess its stimulus program in the first quarter of 2015. He said the bank could potentially change the size, scale and composition of its existing stimulus programs and added that governing council remained unanimous that it would take further measures if needed. The ECB also substantially revised down its forecasts for growth and inflation and warned that the latest forecasts do not consider the recent steep drop in oil prices.

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Oil

Oil prices rose on Friday, heading towards a sixth consecutive weekly gain, as geopolitical tensions continue to raise supply concerns. Brent crude futures were up 63 cents, or 0.7%, at $89.97 a barrel by 1013 GMT, having hit $91.04 on Thursday for their highest since October 2014. U.S. West Texas Intermediate (WTI) crude futures rose 49 cents, or 0.6%, to $87.10. WTI also reached a seven-year high of $88.54 earlier in the session. Both Brent and WTI are on track for what would be the longest run of weekly gains since October.
Supply scarcity has pushed the six-month market structure for Brent into steep backwardation of $6.33 a barrel, the widest since 2013. This means that current levels are higher than those in later months, which usually encourages traders to release oil from storage to sell it promptly. Oil prices continue to receive support from concerns that the Ukraine crisis could disrupt energy markets. However, Russian Foreign Minister Sergei Lavrov on Friday said that Moscow does not want war with Ukraine.

 

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Gold

Gold was up on Friday morning in Asia but moves remained small and the yellow metal was headed for its sharpest weekly decline since November 2021. Investors continue to digest the U.S. Federal Reserve's policy latest policy decision that drove the dollar to a multi-month high. Gold futures were up 0.26% to $1,797.70 by 3:53 AM GMT. However, gold fell below the $1,800 mark and fell about 2% for the week to date, the worst fall since Nov. 26. The dollar, which normally moves inversely to gold, inched down on Friday but traded near its highest level since July 2020. The ripple effect from the Fed’s hawkish turn in its latest policy decision, handed down on Wednesday, continues. With expectations of interest rate hikes sky-high, markets are now pricing in five to six hikes from the Fed in 2022. Investor sentiment was also bolstered by U.S. data that showed the GDP grew a better-than-expected 6.9% quarter-on-quarter in the fourth quarter of 2021.

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