The Japanese economy is performing better than expected.

The yen continues to depreciate. Although there was a small boost in economic growth in the first quarter of 2023, surpassing expectations, the overall trend indicates a sluggish growth in Japan's largest export market.

Japan recently reported a 1.6% expansion in the first quarter compared to the previous year, higher than analysts' forecast of a 0.7% increase. This marks the first growth in three quarters after a GDP contraction of 0.1% in the fourth quarter.

The unexpectedly positive economic figures in Japan may contribute to strengthening the yen, which has been weakened in recent times due to economic easing measures and the surge in yields of US Treasury bonds.

Regarding US Treasury bond yields, the 10-year yield rose from 3.508% at the end of Monday to a two-week high of 3.573% during Tuesday's trading. Meanwhile, the 2-year yield increased by 0.07% to 4.12% on Tuesday.

The strengthening of the US dollar continues to exert pressure on other currencies. The recent remarks by officials from the US Federal Reserve have contributed to the appreciation of the US dollar. The general sentiment among policymakers is that inflation rates remain too high, which may prompt the central bank to raise interest rates in the coming months. It is expected that US interest rates will remain at elevated levels for some time.

The US Dollar Index (DXY) has remained stable against other currencies in today's Asian trading session. Investors have been buying the US dollar as a safe-haven currency before the United States confronts its debt ceiling issue. Additionally, the dollar has received additional support from robust economic indicators in the United States.

Investors have adjusted their expectations that the Federal Reserve (Fed) may begin to taper its bond-buying program sooner than anticipated. Furthermore, the US Department of Commerce reported on Tuesday that US retail sales increased by 0.4% in April, rebounding from a 0.7% decline in March. However, retail sales fell below the poll's estimate of +0.8% for April. Underlying retail sales, which exclude automobiles, gasoline, building materials, and food services, showed strong growth, rising by 0.7% in April after a 0.4% decline in March. This indicates that consumer spending remains resilient in the early part of the second quarter.

The risk of the United States defaulting on its debt obligations could lead investors to seek the US dollar as a safe-haven currency. According to investment strategist Jane Foley of Rabobank, the US dollar plays a crucial role in the global payment system. Therefore, if the largest economy in the world, the United States, suffers significant damage, it would have a highly negative impact on the global economy. This, in turn, would result in investors avoiding risky assets and moving towards safe-haven assets, including the US dollar.

Technical analysis data (5H)

Resistance: 136.56, 136.66, 136.78

Support: 136.33, 136.20, 136.10

Source: Investing.com

 

Pivot Points May 17, 2023 03:25 PM GMT+7