HG MARKETS:

The Japanese yen gained strength as speculation increased that the Bank of Japan (BOJ) could raise interest rates at its upcoming meeting. This speculation was fueled by recent comments from key BOJ officials. In particular, BOJ Governor Kazuo Ueda indicated that the central bank might raise interest rates and reduce its monetary support if economic conditions and inflation trends continue to improve. Ueda’s remarks were made just one day after BOJ Deputy Governor RyozoHimino also suggested that the BOJ would consider raising rates at its next policy meeting. These statements strengthened the Japanese Yen which causes  USD/JPY to fall below 157.00, as Japanese government bond yields surged to multi-month highs. The market appears to be adjusting its expectations for future monetary policy in Japan, and the yen is benefiting from these heightened expectations of a tightening cycle.

Meanwhile, the British pound showed signs of stability following reports that inflation in the UK unexpectedly slowed in December, particularly the core inflation numbers which excludes volatile items, that are closely tracked by the Bank of England (BoE) suggested that inflationary pressures may be easing more rapidly than anticipated. The cooling inflation has increased the expectation that the BoE might prefer rate cuts in forthcoming meeting.In the wake of this data, British government bond yields—known as gilt yields—declined. Lower yields tend to suggest less concern about inflation and a reduced likelihood of future interest rate hikes.

Despite the positive news for the yen and the pound, traders remained cautious overall, awaiting the release of key economic data from the U.S. The U.S consumer price index (CPI)report  forDecember is expected to today. The US CPI report is one of the most important scheduled global economic releases of the week, and market participants are closely watching it as this report will provide further insight regarding US inflation.

Furthermore, The CPI report is particularly significant because it could influence the Federal Reserve’s approach to interest rates in the coming meeting. If the data shows a core CPI increasethan the 0.2% monthly rise that markets expect, it could suggest that inflationary pressures are more persistent than previously thought. This could limit the scope for the Federal Reserve to implement rate cuts in upcoming meetings, which would likely support the U.S. dollar further, especially given the ongoing global bond sell-off. Higher U.S. interest rates tend to make U.S. assets more attractive to investors, which strengthens the dollar and puts downward pressure on other currencies.