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Tamura from the BOJ suggests rate hikes due to inflation concerns, while Australia faces struggles
In Japan, the Services Producer Price Index (PPI) for May increased by 3.3% from a year ago, slightly down from April’s 3.4%. This shows continued domestic inflation pressures. At a recent Bank of Japan (BOJ) meeting, the benchmark rate stayed at 0.5%. The central bank is cautiously reducing its balance sheet due to worries about weak growth and inflation expectations. Opinions among policymakers vary, with some pushing for a more significant rate hike.
Tamura Naoki, speaking in Fukushima, mentioned that stronger rate hikes could happen if inflation risks rise. He suggested that inflation may reach the 2% target sooner than expected due to rising wages and prices. After his remarks, the yen briefly strengthened but later settled back to mid-range levels.
In Australia, April’s Consumer Price Index (CPI) data missed expectations. The headline CPI was at 2.1% year-on-year, while the trimmed mean CPI fell to a 3.5-year low of 2.4%. This has increased the likelihood of a rate cut at the Reserve Bank of Australia (RBA), now estimated at 90%. The AUD/USD pair rose, helped by general weakness in the US dollar, which also boosted the New Zealand and euro currencies.
China’s Premier Li Qiang spoke about shifting toward a consumption-driven economy while maintaining growth. The New Zealand dollar performed well, partly due to Australian selling of AUD/NZD.
The piece summarizes recent inflation trends and central bank actions across key economies, each influencing market dynamics differently. In Japan, the May PPI rose by 3.3% year-on-year, which is slightly below April’s 3.4% increase, indicating persistent price pressures at a slower pace.
The Bank of Japan held its benchmark rate at 0.5% in its latest meeting. While there is some push for a stricter policy, caution prevails due to concerns about economic growth and stable inflation expectations. Some policymakers, including Tamura, are ready to act if inflation signals escalate. His comments in Fukushima hinted that the central bank might hit its 2% inflation target sooner than anticipated if wage growth translates into higher consumer prices. This sparked a brief rise in the yen, though gains were quickly lost, suggesting that markets want more decisive moves.
In Australia, inflation numbers for April were lower than expected, with headline consumer prices at 2.1% year-on-year and a trimmed mean at its lowest in over three years. These results have heightened expectations for a rate cut at the RBA’s next meeting, with market odds now over 90%. The Australian dollar improved partly due to a weaker US dollar, which also lifted the New Zealand and euro currencies.
China’s strategy, focusing on consumption rather than exports or investments, indicates a shift in policy intent. While challenging to maintain, it shows an interest in boosting domestic spending. The New Zealand dollar saw gains recently, not just from global trends but also from Australian traders adjusting their AUD/NZD positions.
So, how should this be viewed? In Japan, inflation pressures are still significant, even with slight recent changes. The BOJ’s divided stance might lead to uneven reactions to new inflation data. This could favor those positions that are already leaning toward a hawkish view. However, with no immediate changes, patience is essential.
In Australia, the drop in trimmed mean CPI signals easing pressures, supporting dovish policy expectations and reinforcing short-duration trades. However, with market views so strongly one-sided, any unexpected data could quickly shake up local bond and currency markets, which usually respond momentarily.
For China and New Zealand, we are observing secondary effects. Currency flows between these nations often relate more to relative positioning than domestic conditions. As Li pushes for structural transformation, surprises in Chinese activity can influence not just the renminbi but also high-risk currencies tied to China’s growth, like the Australian and New Zealand dollars.
Timing is crucial here. With central banks responding at different paces, distinguishing fleeting market noise from lasting price trends is essential. Some patterns reverse quickly, while others don’t. But when clearer directions emerge from data or policy shifts, we are ready to act.
USD/CHF remains stable at 0.8050 after earlier losses of about 1%
USD/CHF hovered around 0.8050 during European hours, moving sideways after a 1% drop the day before. The pair showed little change after the release of the Swiss ZEW Survey Expectations, which reported a decline of -2.1 for June, an improvement from the prior -22 drop.
The USD/CHF remains near its lowest level since September 2011, hitting 0.8034 on Tuesday. The Swiss Franc is benefiting from safe-haven demand, while the US Dollar has weakened due to news of a ceasefire in the Middle East.
Trader Caution Over Ceasefire Longevity
Traders are cautious about how long the ceasefire might last. A US intelligence report stated that US strikes have only delayed Iran’s nuclear progress by a few months, while Iran insists its program is still ongoing. Fed Chair Jerome Powell hinted that rate cuts might be delayed until the fourth quarter, with future cuts depending on timing. Data indicates that tariffs are expected to raise inflation for consumers starting in June. The ZEW Survey Expectations measure business and employment conditions in Switzerland. The latest figures show a decline from previous months, which may be bearish for the Swiss Franc. The USD/CHF is trading narrowly in the lower 0.8000s, close to levels not seen in over a decade. After a sharp 1% drop in the prior session, the pair has stalled, lacking momentum to either recover or decline further. The market’s muted reaction to the Swiss ZEW expectations shows a level of passivity, despite a slight improvement compared to May’s more negative results. The small rebound in the sentiment index, rising from -22 to -2.1 in June, indicates less pessimism in Swiss business expectations, although it remains below zero. Investors do not seem to view this as a strong reversal. Even with improvement, the number is still historically negative, so optimism is limited. The strength of the Swiss Franc is largely due to its safe-haven appeal. With ongoing uncertainty in the Middle East—especially with new intelligence from Washington—markets fear that tensions might escalate again. Although the ceasefire appears promising, it hasn’t provided lasting security, particularly given Iran’s claims about its nuclear program continuing despite US actions. In uncertain times, investors tend to favor the Franc, and this trend continues.Central Bank Communication and Rate Expectations
The softness of the US Dollar is not just about geopolitics. Central bank communication is also influencing the market. Powell’s recent statements suggest that the Federal Reserve is not ready to implement rate cuts soon. Mentioning quarter four as the earliest point for a potential rate adjustment implies that policymakers want to avoid hindering progress on inflation. Their timing depends on more evidence and they aim to prevent premature demand increases. Another factor being priced into the market is the impact of trade protections. Recent data indicates that tariffs could begin to accelerate consumer price inflation starting in June. This effect will be gradual, but the nature of derivative pricing may mean that these impacts are already reflected in US-linked pairs. In this environment, short-term options pricing remains sensitive to event risks and long-term positioning. In pairs like USD/CHF, which are influenced by policy divergence and safe-haven demand, hedging flows can change rapidly. This week may not offer high confidence in predictable market movements. Currently, movements trend slightly downward but remain small. Since Tuesday’s lows, there hasn’t been strong accumulation. It’s essential to stay alert to news regarding geopolitical tensions and rate expectations, as volatility can erupt suddenly. Given that the Swiss currency may be more affected by global risk factors than local data, and that the Dollar is increasingly responsive to signs of slower easing, the direction of the pair may depend more on news than on momentum. Traders looking to manage exposure should consider this and not solely rely on charts, paying attention to rates, energy markets, and broader credit movements for early signals. In the current context, short-dated premiums may be more warranted than usual, especially around news-heavy sessions. Create your live VT Markets account and start trading now.RBC suggests that Chinese equities may stay range-bound in late 2025 because of trade dynamics.
RBC expects Chinese stocks to stay within a specific range in the second half of 2025. US-China trade talks and company earnings will likely play a big role in their performance.
RBC believes that while a worst-case trade scenario has been avoided, we will still see some ups and downs as negotiations continue. They’re noticing signs of recovery, and the impact of US tariffs is becoming more obvious.
Earnings Resilience and Possible Growth
The focus is on how stable earnings can be and if the rise in earnings per share (EPS) can lead to further improvements in stock values. Possible positive surprises may come from government reforms, like better market access and changes in industrial policies. What this means is that we shouldn’t expect sharp movements in Chinese stocks in the coming months. Robertson’s team thinks these stocks will mostly respond to economic signals and policy updates instead of purely market emotions. While the market won’t be completely predictable, its current behavior shows it’s cautious and waiting rather than aggressively pushing forward. Expectations for increased trade tensions have lessened, so worst-case outcomes like harsh tariffs or sudden sanctions seem unlikely at the moment. However, news from the US can still quickly affect stock prices. This means we should be ready to react but not overreact. As tariffs start to impact profits, any changes will show up in forecasts before anything else. Currently, those signals are mixed but not alarming.Potential Reforms and Timing of Fiscal Changes
Earnings are slowly starting to rise again, which is more significant than usual. If increased EPS comes with higher sales and better profit margins, it indicates genuine growth, not just a temporary trend. This could allow stock valuations to rise naturally rather than just from market sentiment or extra liquidity. We’re watching how this develops in different sectors, particularly in financials and large industrial companies. If positive changes do happen, they will likely come from specific reforms rather than broad announcements—such as improvements in state-owned enterprises or policies that make it easier for consumers to access financing. Even small actions, like expanding pilot zones or relaxing quotas, can impact global market confidence, especially if they bring more regulatory clarity. The kind of fiscal support given will also be important. Approvals for new infrastructure projects or financial aid to struggling areas can create real changes and lead to quick adjustments in stock evaluations. We’re preparing to monitor not just the policies stated, but how quickly they are implemented. The timing is often more crucial than the message itself. If promised fiscal support doesn’t arrive as scheduled, it can lead to shifts in market positions, even if help eventually comes. In this situation, being flexible and focusing on liquid, responsive assets makes more sense than investing in fixed long-term positions. No single piece of news will drive the market’s future movements. However, a mix of steady earnings, gradual reforms, and timely stimulus could lead to market changes. Timing our trades to align with that connection—where data shows improvement and policy implementation follows—is key. For now, we should focus on what we can already see and be ready to act quickly based on the next developments. Create your live VT Markets account and start trading now.Gold prices in Malaysia have increased, according to recent data.
Gold prices in Malaysia rose on Wednesday. A gram is now priced at 453.25 Malaysian Ringgits (MYR), up from 452.75 MYR the day before. The price of a tola increased to MYR 5,286.57, from MYR 5,280.75.
Gold prices are determined by converting international rates to local currency, with daily updates reflecting market changes. Gold is a safe-haven asset and a way to store value, often used to protect against inflation.
Central Bank Strategies
Central banks keep large gold reserves, amounting to 1,136 tonnes in 2022 as part of their economic strategy. Countries like China, India, and Turkey are leading in increasing their gold holdings. Gold prices fluctuate due to various factors. They tend to move inversely with the US Dollar and Treasuries. Geopolitical instability or fears of a recession can push prices higher, while lower interest rates usually help gold. Conversely, a stronger dollar can cause gold prices to fall. Locally, we’ve noticed a slight increase in gold prices—nothing drastic, but notable. The rise from 452.75 to 453.25 MYR for a gram, along with similar trends in larger units, indicates ongoing buying interest. This could be due to economic concerns or expectations of softer policies internationally.Global Market Linkages
Gold prices in Malaysia are tied directly to global benchmarks, updated in real-time as currencies fluctuate or traders adjust their positions. The connection to international rates, particularly the US Dollar, means that even small changes in global signals can impact prices sharply. For example, stronger dollar days often lead to lower gold prices since gold is priced in USD. Thus, when the dollar weakens, gold becomes more expensive in MYR. Central bank actions also matter. When institutions like the People’s Bank of China or Turkey’s monetary authorities increase their gold reserves, we see this as more than just a routine move. It could signal a hedge against currency pressure, or a shift towards greater diversification. The significant purchases in 2022, exceeding a thousand tonnes, show a sustained demand that supports prices. The relationship between gold and fixed-income investments is well-understood. When yields rise, gold becomes less attractive since it doesn’t earn interest. Investors often shift their money elsewhere, particularly to US Treasuries. Conversely, if bond yields drop or recession fears rise, gold tends to perform better. Therefore, we must watch upcoming central bank decisions and inflation trends, as these will influence market sentiment. Recent geopolitical events in Europe, the Middle East, and Asia have shown how quickly risk can affect prices. During uncertain times, physical buying often increases, lifting prices. This behavior reflects a desire for safety rather than speculation. However, traders should not be complacent. Rising real yields in the US can decrease gold’s appeal. Monthly inflation data—especially core inflation and wage growth—will also determine how policymakers set rates moving forward, impacting gold prices. In the coming week, attention should focus on the trends of the dollar index and short-term expectations in the bond market. If technical factors align with fundamental trends, such as a decline in short-term yields or more dovish monetary statements, we may see continued support for current prices. But if inflation proves stubborn or if the Fed hints at more rate hikes, we could face downward pressure. Those involved in trading should monitor not only price movements but also what influences bond markets in New York and forex flows during Asian trading hours. While prices may shift by just half a ringgit daily, external forces are at play that go beyond local trends. Create your live VT Markets account and start trading now.China’s Premier Li expresses concerns about global economic challenges and the need for collaboration at the World Economic Forum
The global economy and international trade face new challenges. The economic system is changing, with international trade structures adjusting and supply chain risks on the rise. Some regions are hindering international market cooperation, citing the need for risk management.
While disruptive factors impact the global economy, positive forces aim to find common ground. It is essential to stay on the correct path and align with current trends to reshape international economic rules. Economic globalization continues to evolve, presenting complexities that require effective measures to support free trade.
China is working to boost global connectivity and promote sustainable development. It is actively involved in G20 and BRICS discussions. Recent data indicates that China’s economy improved in the second quarter, showing strong growth. Its transition from a manufacturing hub to a major consumer market offers expanded opportunities for global businesses.
China is dedicated to sharing technologies and innovations, emphasizing adherence to market principles. It opposes the politicization of economic matters and encourages a focus on long-term goals. The government supports entrepreneurship and invites international businesses to invest in China. It also stands against decoupling and disruptions in supply chains, advocating for stability and cooperation globally.
The key takeaway is clear. The economic framework is under subtle but observable stress, primarily due to countries’ positions on trade and cooperation. While some governments are pushing for self-reliance through localized supply chains, China is promoting openness, trade reliability, and broader participation in global rule-making.
Data from the second quarter shows real progress in consumption growth within China, reinforcing its shift towards a more domestically focused economic model. While gross domestic product figures don’t tell the whole story, they highlight the importance of consumption as a key driver of growth, more so than just headline manufacturing exports. This shift emphasizes internal demand as the main driver.
This change has direct implications. With the domestic market attracting global producers, sectors connected to consumer goods—such as transportation, technology, premium products, and select services—appear promising. This is not a definitive roadmap, but a sign that increasing demand is part of a long-term strategy, rather than a temporary correction.
One notable aspect is the active encouragement of shared innovation and technology partnerships. This is genuine, not just talk. The structural approach advocated by Wang suggests stronger legal protections for foreign participants and openness in procurement, which helps alleviate geopolitical fears and offers business predictability. Practically, this approach enhances opportunities for companies involved in bilateral supply routes.
Policies that discourage decoupling reinforce expectations of market continuity, even from those who have previously indicated a retreat. This stance is not neutral; it clearly advocates for integration. This perspective is vital for making informed decisions—not solely based on a trade war, but on the likelihood of a structured reprioritization of supplies.
We should regard calls for certainty in trade not as mere diplomatic language, but as a desire for conditions that minimize friction in cross-border pricing and limit costs for end consumers. Less uncertainty typically leads to narrower price ranges in sectors tied to imports, which warrants attention for both opportunities and caution.
From a risk-adjusted investment strategy, clear guidance on entrepreneurship indicates that funds directed towards domestic projects will have some policy support. The potential for productivity gains exists, particularly in technology-linked facilities and inputs.
Li’s statement about avoiding the politicization of business should inform our approach. It is not just a slogan; it represents a rejection of retaliatory trade measures. Movements in tariffs or export controls from other nations are likely to be met with measured responses rather than aggressive pushback. This creates a softer environment, encouraging some companies to revert to familiar channels rather than explore more complicated, stretched routes.
Trade-related derivatives—especially in raw materials and major bulk carriers—may experience relative stability in the mid-term if investment flows stabilize. Those watching for volatility from disruptions in logistics may notice these signals calming. While risk rarely vanishes, the direction appears clearer.
Ultimately, the message emphasizes continuity through engagement. No system is without challenges, but the preference here is apparent: steady integration, predictable economic diplomacy, and openness to foreign capital are themes that should help stabilize pricing in the coming weeks. We need to adapt accordingly.
Silver sees modest gains near $36.00 as the US dollar weakens and traders await Powell’s testimony
Silver prices are slightly up, trading around $35.95 during the Asian session on Wednesday. A weaker US Dollar is helping support Silver, which is priced in USD.
US consumer confidence fell in June, with the Conference Board reporting the index dropped to 93, below expectations. This decline puts pressure on the US Dollar, which benefits Silver.
The ceasefire between Iran and Israel seems to be holding, suggesting a decrease in tensions in the Middle East. If tensions rise again, Silver may see more demand as a safe-haven asset.
Investors like Silver for its historical value, using it to diversify portfolios and guard against inflation. Silver prices are influenced by geopolitical tensions, interest rates, movements in the US Dollar, investment demand, mining supply, and recycling rates.
Silver is in demand for industrial purposes because of its high electrical conductivity, especially in electronics and solar energy. Silver prices often follow Gold’s patterns due to their shared safe-haven qualities, and the Gold/Silver ratio helps evaluate their relative values.
Currently, Silver is stable around $35.95 during Asian trading hours, with slight gains. One of the main factors supporting this is the recent drop in the US Dollar. Since Silver is priced in USD, a weaker Dollar makes it more affordable for international buyers, increasing global interest and demand.
The decline in the Dollar is tied to weaker-than-expected US consumer confidence data from June. With the Conference Board’s index at 93, significantly below forecasts, doubts are rising regarding the strength and sustainability of the US economy moving forward. Markets see this change in sentiment as a potential challenge to a tight Federal Reserve policy, which is key for those monitoring interest-rate-sensitive metals.
These readings can create a ripple effect. When consumer confidence falls, it often leads to slower spending expectations, impacting rate futures. As the chances of rate hikes decrease or stabilize, the Dollar often weakens. This, in turn, benefits metals like Silver and Gold that thrive in low-yield environments. That’s a key connection to keep an eye on.
Geopolitical conditions are also important. The ceasefire between Iran and Israel is holding for now, but such agreements are often unstable. If hostilities resume, it would likely result in a surge towards safe assets, benefiting Silver. Commodity markets typically react to tensions that threaten global trade or oil prices. Silver, with its dual role as an industrial and defensive asset, garners interest in such scenarios.
Additionally, Silver’s industrial applications are significant. Its high conductivity makes it valuable in both growing and stable sectors. Demand for solar panels is rising in Asia and Europe, while electronics producers are ramping up output as the year ends. If supply tightens, we could see a quick impact on prices. Sharp inventory drops at global exchanges have historically increased volatility.
It’s also important to monitor the Gold/Silver ratio, which indicates market sentiment towards the two metals. When this ratio widens beyond historical levels, it may suggest Silver is undervalued or overvalued relative to Gold. Any narrowing could indicate Silver catching up or Gold pulling back.
Derivative volumes and open interest in Silver contracts fluctuate with market sentiment, especially around inflation and US Dollar hedging. If real yields change rapidly, we can expect a quick reaction in metals. Currently, sentiment-related flows will likely drive movements, as positioning adjusts quickly based on economic data and geopolitical updates.
It’s crucial to follow Fed commentary and US Treasury yields, which significantly affect short-term movements. A decrease in rate expectations could lead to more buying in metal-linked derivatives. We should stay alert for volatility, especially with major US data releases and central bank minutes set for the next two weeks.
As we examine these factors, consistency in their impact is more vital than any headline surprises. It’s often more about the trends and persistence than the shocks themselves.
China boosts yuan internationalization efforts as global confidence in the dollar weakens and investor access expands
China is speeding up its efforts to make the yuan more global due to growing doubts about the U.S. dollar. Major Chinese exchanges have introduced 16 new futures and options contracts for foreign investors, focusing on commodities like rubber, lead, and tin. This is part of a larger plan to boost the yuan’s influence in international commodity pricing and financial dealings.
The People’s Bank of China aims to lessen its dependence on the dollar. It is setting up a digital yuan internationalisation centre in Shanghai and is expanding trading in yuan FX futures. To attract global interest, Beijing is allowing foreign currencies as collateral for yuan trades, creating options for trading ETFs, and eliminating fees for foreign institutions accessing the bond market. Morgan Stanley’s China branch has also received approval to expand its brokerage services.
The Rise Of The Yuan In Global Trade
The U.S. dollar still makes up nearly 50% of global payments, but the yuan is gaining ground, especially in energy and commodities trades. More Chinese banks are offering yuan loans to developing markets. However, challenges remain, such as capital controls, less liquid assets, and legal uncertainties. Despite this, the yuan’s presence is growing due to efforts to move away from the dollar and investors seeking alternatives to U.S. assets. State Street Global observes increased institutional investments in yuan assets, even with currently low positioning. China is clearly opening its futures and derivatives markets to international investors. Exchanges are now welcoming foreign funds for contracts linked to widely traded raw materials in Asia like rubber, lead, and tin. This move aims to strengthen the yuan’s position in global commodity pricing, gradually reducing reliance on the dollar. China’s central bank is not just modifying monetary policy; it’s building new frameworks for currency trading. A new centre for the digital yuan has launched in Shanghai, and plans to broaden yuan FX futures trading are underway. These initiatives make it easier for foreign players to transact in yuan without relying heavily on the dollar for collateral. Foreign investors are enjoying reduced fees, expanded access to ETFs, and greater freedom to navigate China’s large government bond market with fewer hurdles. Meanwhile, the dollar remains a dominant force, processing half of the world’s transactions. However, its hold is being challenged, especially in the area of bilateral trades such as energy contracts, where the yuan is starting to gain traction. It’s not a complete shift yet, but the trend is noticeable. Li, from China’s top monetary authority, is encouraging a more balanced global flow of currencies. One method boosting yuan adoption is through loans. More Chinese banks are making credit deals in yuan with developing regions that now see dollar exposure as a risk rather than a safety net.Traders And Yuan Denominated Contracts
Traders focused on derivatives will need to rethink their hedging strategies with the increased availability of yuan-denominated contracts. With simpler margin requirements for yuan trades accepting foreign collateral, capital movement across currencies is less fragmented. This allows for better risk management across positions related to Chinese exchanges. Additionally, the introduction of 16 new contracts provides more options to address broader economic trends without being affected by dollar fluctuations. Concerns about liquidity are valid, as some of these markets remain small, and legal remedies for disputes are not as developed as in the West. Still, cautious growth in flows is evident. Wong, from a global asset management firm, notes that institutional participation is gradually favoring Asia, though not aggressively. The current light positioning indicates potential for volume growth, especially if Beijing continues to reduce barriers systematically. For traders, it will be essential to monitor changes in monetary policy as well as improvements in exchange procedures, collateral flexibility, and settlement efficiency. Mid-sized funds that typically hedge in London or Singapore might discover new opportunities in these yuan options. Overall, returns volatility in yuan-based contracts could become a key part of macro portfolios. Risk managers should run liquidity stress tests for yuan-commodity exposure ahead of the next quarterly adjustment. In summary, the landscape is shifting. While change may not be swift, it is clear and demands attention. Create your live VT Markets account and start trading now.EUR/JPY trades around 168.30 after losing over 0.50% as the Yen stays stable
EUR/JPY is holding steady near 168.50 after the Bank of Japan (BoJ) indicated it would keep interest rates the same. The potential for the pair to rise is linked to lower demand for safe-haven currencies due to the recent ceasefire between Israel and Iran. European Central Bank (ECB) member Villeroy de Galhau mentioned that interest rate cuts may be considered, even with oil market fluctuations.
After a decline of over 0.50% in the previous session, the pair is trading around 168.30 during Wednesday’s Asian hours. The Japanese Yen showed little change after the BoJ released its June meeting opinions.
BoJ Policy Considerations
The BoJ’s summary showed that some policymakers prefer to keep interest rates steady due to uncertainties from US tariffs on Japan. Most members noted that the effects of these tariffs are still unfolding and may negatively impact business sentiment. In May, Japan’s core inflation hit a two-year high, surpassing the central bank’s 2% target. Positive PMI data from Japan supports the possibility of further rate hikes from the BoJ. Improved risk sentiment could lift EUR/JPY, particularly as tensions in the Middle East ease after the ceasefire between Iran and Israel. However, uncertainties remain regarding the ceasefire’s durability and ongoing concerns about Iran’s nuclear program. ECB policymaker Francois Villeroy de Galhau mentioned a possible rate cut in relation to oil market instability. Meanwhile, chief economist Philip Lane emphasized that monetary policy should reflect both economic activity and inflation risks.Geopolitical Risks and Market Strategy
At present, EUR/JPY is hovering around 168.30 after falling just over half a percent previously. It is being supported by cautious central bank statements and a temporary calm in the Middle East. However, key challenges are still present. The BoJ’s June summary did not disrupt the market, as many board members remain hesitant to change rates, especially considering the long-term impact of US tariffs on Japanese firms. Some policymakers expressed worries that new American tariffs might hurt corporate sentiment in Japan more than expected. This perspective gives the BoJ more time, even with core inflation above its target and encouraging PMI figures indicating strong domestic activity. Short-term interest rate expectations are low, holding back the yen despite rising price pressures. The lack of noticeable market reaction to the meeting’s opinions suggests a wait-and-see mindset. Currently, volatility is low, leading to weaker directional conviction. For traders looking into options, the lower realized volatility on the yen side allows for exploring low-delta spreads, especially since implied volatility has been higher since late May. In Europe, the situation is evolving. Villeroy hinted that the ECB might consider rate cuts despite oil market volatility, which could affect euro positioning. Lane keeps the focus on data dependency, emphasizing that inflation and economic activity are interconnected when setting future rates. This approach creates an asymmetry in expectations, especially for shorter durations, with the euro being more responsive to data fluctuations. In the short term, the movement of EUR/JPY will depend on whether the ceasefire between Israel and Iran holds. The reduced safe-haven demand following the truce has led to some unwinding of long-yen positions, slightly boosting the pair. However, geopolitical risks often have delayed reactions. Concerns about Iran’s nuclear program are resurfacing, signaling that the situation may be more of a pause rather than a true resolution. Traders looking for directional opportunities should monitor headlines from the Middle East closely. The sensitivity to sudden changes in sentiment makes upside options appealing, particularly since the pair is trading on a narrow base and spikes in volatility could pose a risk. Calendar spreads on EUR/JPY might provide flexibility, especially with upcoming risks from central bank policies and geopolitical developments. To move above 169, there would need to be fresh strength in the euro or a dovish shock from Tokyo, neither of which is guaranteed soon. Currently, the rate differential does not support a breakout. The market is likely to maintain a mild and one-sided bias unless risk-off sentiment resurfaces. This may allow for layered strategies using butterflies or narrow strangles in the next two weeks. With both central banks waiting for new inflation readings and policy statements, it’s wiser to engage with the forward curve rather than trying to catch a sharp market turn right now. Sideways market conditions often favor strategies that benefit from time, so it’s important not to underestimate the gap until significant policy changes occur. Create your live VT Markets account and start trading now.The PBOC sets the yuan’s mid-point at 7.1668 and injects 209 billion yuan through repos.
The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as renminbi or RMB. The PBOC uses a managed floating exchange rate system, which allows the yuan’s value to change within a +/- 2% range around this midpoint.
Today, the USD/CNY midpoint is set at 7.1668, while the estimate was 7.1709. The previous close was 7.1712.
The PBOC injected 365.3 billion yuan into the market using 7-day reverse repos at a 1.40% interest rate. With 156.3 billion yuan maturing today, this means there is a net injection of 209 billion yuan.
This morning’s midpoint fix shows how the central bank is managing the currency. By setting the yuan at 7.1668 instead of the higher 7.1709, the PBOC subtly leans towards strengthening the currency. While this change is small, it’s intentional, aiming to influence sentiment without causing a major shift.
The recent close of 7.1712 indicates that the market is slightly weaker than the reference point. This means the fix suggests a strengthening perspective, but spot prices are showing some hesitance. The slight difference indicates that demand for dollars is still stronger than local interest in yuan.
With today’s operations, the PBOC injected 365.3 billion yuan through 7-day reverse repos, which is much higher than the 156.3 billion yuan maturing. This 209 billion yuan increase shows a clear commitment to keeping liquidity high. The stable 1.40% rate supports funding costs without signaling any major policy changes.
For those watching closely, this deliberate injection, along with a midpoint fix that is stronger than expected, indicates a careful balancing act by the authorities. They are providing ample liquidity but without excess. They are sending clear guidance on the exchange rate while managing internal liquidity and external currency pressures.
In the coming days, we can expect a heightened sensitivity in short-term interest rate products, especially those related to repo and short-term swaps. The focus on maintaining smooth liquidity through reverse repos means we must be quick to adjust rate positions in response to any shifts in the debt market or interbank stress.
A fix slightly below expectations often suggests a desire to limit declines in the yuan. Recently, we’ve seen this align with somewhat firmer onshore short-dated options, particularly those spanning one to two weeks. So, pricing for upside protection in USD/CNY may continue to find support, although a major repricing is not expected—at least for now.
As liquidity injections continue above the amounts rolling off into the early part of the quarter, we should watch for any changes in reverse repo volumes. A significant reduction in these injections would suggest a move away from the currently supportive stance. In contrast, increased volumes, especially if combined with stronger-than-expected midpoint fixes in the future, would point to a stronger short-term stabilization effort.
Regarding derivatives execution, there’s a chance to keep things steady, but we must not be complacent. If there are sudden moves outside the expected fix range, especially during larger liquidity drains or increases in short rate premiums, we may need to quickly reassess our risk appetite. The gap between expectations and actual fixings provides a clear measure of risk that needs careful attention.
Finally, today’s net liquidity boost changes the front-end funding curve, making it flatter near the 7-day mark. This slight shift makes very short-dated interest rate swaps more appealing from a carry-neutral perspective. However, any movement beyond two weeks may still carry some uncertainty, especially with broader macro data yet to be released.
The GBP rises to around 1.3620 as the USD weakens from lower safe-haven demand.
The Pound rose against the US Dollar as a proposed ceasefire faced some violations, but risk appetite remained strong. The GBP/USD increased by over 0.65%, despite ongoing geopolitical uncertainties.
