USD Index and USD/JPY Performance

The USD index rose 0.2% to 103.19 by Wednesday afternoon in North America, with the lion’s share of the gain coming from a significant 2% rise in USD/JPY. This increase followed comments from the Bank of Japan’s Shinichi Uchida, who stated that the central bank will not hike interest rates when markets are unstable, downplaying the chance of a near-term hike in borrowing costs. The dollar's rise was also aided by rising U.S. Treasury yields, as the recent haven bid in U.S. Treasuries, which had sent yields tumbling, continued to unwind.

EUR/USD Movement

EUR/USD slid a scant 0.05% to 1.0924 in early North American afternoon trading, despite bund yields rising slightly faster than Treasuries. Today's movement may be an outlier as markets further digest recent extreme moves. The tightening U.S.-DE bond spreads are likely to support EUR/USD, and given the evolution of U.S. growth and inflation, may provide fodder for another test of resistance at 1.10.

USD/JPY Highlights

USD/JPY was the main event as the pair rose near 148 on Wednesday and held above 147 as we neared the North American close. Less-dovish BoJ comments lifted USD/JPY, as the headlines tempered U.S.-Japan rate convergence, which had been a key driver of USD/JPY weakness after MoF interventions and the recent BoJ surprise hike.

GBP/USD Support Levels

GBP/USD found support once again just within its daily cloud, which spans 1.2716-1.2596, by the 100-DMA at 1.2684. Extreme long GBP positioning continues to unwind as traders await UK output data and UK and U.S. inflation data later in August. With UK rate uncertainty after the recent 25bp BoE cut tamping down on sterling, bulls will need a rise above the daily conversion line at 1.2781 to stem the current bearish tide.

Equity Markets and Commodities

The Nasdaq and S&P indices were up near 0.5%, off earlier session highs, but the recovery from the recent carry-related volatility spike appears to be abating. Gold rose 0.38% and is hovering near $2,400 in North American afternoon trading.

Cryptocurrency Market Reaction

Cryptos were softer reacting to higher yields, with bitcoin down 1.2% at $55.9k, and ether down 4.4% at $2,381.

Market Drivers and Outlook

The market drivers primarily included the BoJ's less-dovish comments, rising U.S. Treasury yields, and recent significant moves in global bond spreads. The market outlook remains cautious as investors await further economic data from the U.S. and UK to guide their expectations on rate cuts and economic growth.

Currency Summary

• USD: Gains against the yen, slight losses against the euro.
• EUR: Supported by tightening U.S.-DE bond spreads.
• GBP: Supported by technical levels within its daily cloud.

Currency Outlook

The currency outlook suggests continued volatility, particularly in USD/JPY, as traders react to central bank signals and economic data releases. There is potential for further movements in EUR/USD and GBP/USD depending on upcoming inflation and output data.

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