While investors focused on countries such as the US and UK are awaiting and anticipating rate cuts, the Bank of Japan has just raised its key short-term interest rate again. Here are the key points to watch in August:
- On August 1 there is a Bank of England interest rate decision, with the consensus expecting a 25bps cut.
- After declining in the first half of June against the euro and GBP, the US dollar strengthened over the past couple of weeks. Its direction in August will be a key factor to watch, especially after the latest Fed rate decision and Powell’s comments.
- The yen has strengthened against the US dollar for most of July, and now, given the recent rate rise from the BoJ, that strength has continued.
US Dollar
The US Federal Reserve kept its key interest rate at 5.25% to 5.5% on July 31. However, Chair Jerome Powell said that a September rate cut is “on the table” after they saw further progress towards the 2% inflation target. The comments should dictate USD movements at the beginning of August. We expect some near-term USD weakness on the back of Powell’s comments, especially against the JPY. However, with the BoE expected to cut rates on August 1, against the GBP it could be short-lived and we may see soe volatility in the pair.
Key Levels
- EURUSD: Higher – 1.0940, Lower – 1.0710
- GBPUSD: Higher -1.2775, Lower – 1.2525
- USDJPY: Higher -161.00, Lower -157.80
Euro
While the euro started well against the USD in July, it has pulled back in the past couple of weeks. In truth, the pair has been ranging somewhat since February. With the Fed expected to cut rates in September, a break to the upside for the EURUSD is potentially on the cards. Whether that will begin in August is another question. The euro has declined Against the GBP, and the trend is pointing downwards. However, comments from the BoE on the direction of UK interest rates on August 1 are something to watch for.
Key Levels
- EURUSD: Higher – 1.0940, Lower – 1.0710
- EURGBP: Higher – 0.8500, Lower – 0.0.8350
British Pound
As mentioned above, the BoE rate decision and comments from the central bank will be vital in determining the direction of the GBP over the next few months. From a technical viewpoint, against the US dollar, the pound made substantial gains in July, and a bounce from the trendline, or the key 1.28 level, should confirm that the near-term direction is to the upside. With the UK economy returning to growth in May, an improving risk environment should help the GBP.
Key Levels
- EURGBP: Higher – 0.8500, Lower – 0.0.8350
- GBPUSD: Higher -1.2990, Lower – 1.2800
Japanese Yen
July was fruitful for Japanese yen bulls after the USDJPY climbed above the 160 level. The rate rise from the BoJ comes at a time when the US is expected to cut rates. This could favour the yen, although there are still some risks that traders should consider first. From a technical standpoint, further near-term downside in the pair is preferred, but another leg higher cannot be ruled out. The same can be said of the EURJPY, although we would be more confident in the JPY’s strength against the euro.
Key Levels
- USDJPY: Higher -157.60, Lower -147.00
- EURJPY: Higher – 168.00, Lower – 159.85
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