💱 FX Seeks Direction Ahead of Next Week’s Policy Meetings
Current Market Conditions
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In Tokyo trading, USD/JPY hovered in the 147.20–147.50 range, EUR/USD traded in the low 1.17s, and GBP/USD stayed in the mid-to-high 1.35s.
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Dollar buying showed a slight edge, though overall trend clarity remains lacking.
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In early London trade, USD/JPY briefly touched 147.98, extending the yen-selling momentum. EUR/JPY hit 173.42, and GBP/JPY reached 200.28, both setting fresh highs.
Fundamental Backdrop
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Softening in the U.S. labor market and cooling inflation have cemented expectations for a 25bp rate cut at the September FOMC. Markets now also lean toward the possibility of three rate cuts in total by year-end.
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For USD/JPY, the spotlight is on next week’s Bank of Japan meeting, with investors watching closely for hints of a possible resumption of rate hikes.
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Domestically, anticipation of fiscal expansion ahead of the LDP leadership election on October 4 is adding to a yen-weakening bias.
Economic Data & Events
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With the weekend approaching and Japan heading into a three-day holiday, short-term positioning adjustments are likely. A key focus is whether USD/JPY can sustain levels above 148.00.
Key releases today:
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Canada: Building Permits (July), Capacity Utilization (Q2)
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U.S.: University of Michigan Consumer Sentiment (prelim, September)
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Forecast: 58.0 (prior 58.2)
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Inflation expectations: 1-year = 4.8% (flat), 5–10 year = 3.4% (down from 3.5%)
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Policy Commentary
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A series of speeches from ECB officials, including President Koch, Lane, and Nagel, are expected. With the ECB Governing Council just concluded, market participants anticipate a wave of follow-up comments.
Key Focus Points
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Next week’s U.S. and Japan monetary policy meetings are decisive for FX direction.
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FOMC: Rate cut size and forward guidance on total cuts in 2025.
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BOJ: Any hint of resuming rate hikes.
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Political risks: Japan’s ruling party leadership race and France’s upcoming confidence vote could also influence market sentiment.
