The US dollar and Japanese yen were two of the strongest major currencies on Monday, just behind the New Zealand dollar, as uneasy risk appetite weighed on the S&P 500 and DJIA. The moves suggest that Friday wasn’t necessarily a turning point for the greenback after the release of better-than-expected US non-farm payroll results provided a boost to both the currency and US equities, but with event risk due to pick up later in the week, we won’t jump to conclusions.
Though not incredibly market-moving for the Japanese yen, it’s worth noting that the Bank of Japan will announce their latest rate decision overnight. The BOJ is anticipated to leave rates unchanged at 0.1 percent, and while some economic indicators - including machine orders, industrial production, and manufacturing PMI - have shown signs of improvement, the central bank is likely to continue focusing on risks stemming from persistently weak domestic demand and deflation.On August 12, traders will be watching the release of the Federal Reserve’s rate decision. The Federal Open Market Committee (FOMC) is widely expected to leave the fed funds target range at 0.0 percent - 0.25 percent, but the statement could spark heavy volatility if the FOMC announces an expansion of their QE efforts or an elimination of them. Generally, signs that the central bank may increase Treasury purchases have been negative for the US dollar, but indications that they will complete the program within the next month or so could send the greenback spiraling higher. Though highly unlikely, any change to previous wording that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period” are sure to spark heavy volatility throughout the financial markets
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