Monday, July 18, 2016

It was a brutal week for the yen

The markets had plenty of US consumer indicators to sift through on Friday, and the numbers were a mixed bag. US consumer inflation reports posted small gains of 0.2%, as inflation levels remain soft. There was better news on the consumer spending front, as Core Retail Sales posted a strong gain of 0.7%, beating the estimate. The UoM Consumer Sentiment report dipped below the 90-point level for the first time in three months, and was short of expectations. The Federal Reserve is unlikely to raise rates before September at the earliest, unless there is some strong improvement in economic data, particularly inflation and wage growth, which remain at low levels.
It was a brutal week for the yen, which plunged close to 600 points before reversing directions and closing the week with losses of 400 points. The yen dropped to levels not since since late June, as Prime Minister Shinzo Abe’s election victory last week has paved the path for further monetary stimulus as part of the government’s economic platform. Abe has asked Economic Minister Nobuteru Ishihara to prepare a fiscal stimulus package and the markets will be keeping an eye on the Bank of Japan, which meets in late July and could adopt further easing measures. The yen had gained ground after the Brexit vote, even breaking below the 100-level, as the political and economic turmoil bolstered the safe-haven yen. Still, with the divorce between Britain and the European Union likely to be acrimonious and difficult, the yen could rebound on Brexit aftershocks.