Daily Market Color

FOMC Meeting Awaits While Yen Falls to a New 34-Year Low

Rates/yields fall 2-5bps ahead of FOMC decision. May’s FOMC decision is just around the corner, where the Fed is widely expected to hold rates steady while offering a hawkish forecast. Rates fell 2-5bps ahead of the meeting’s commencement tomorrow, with the 2y UST yield at 4.98% after a ~2bp decline and the belly and long end of the curve falling ~5bps. Weaker than expected Dallas Fed manufacturing contributed, which was -14.5 in April versus the -11.2 estimate. Meanwhile, major US equity indices were up ~0.35% today, headlined by Tesla rallying 15% after an announcement that the company reached a deal with China’s Baidu to access data collection on Chinese roads. In FX markets, activity was headlined by the yen, which fell to a new 34-year low before the BOJ (allegedly) intervened.

BOJ suspected to have intervened in FX markets after yen surges from multi-decade low. Dow Jones reported today that Japan intervened to support the yen after it fell below 160 per dollar, a low since 1990. The yen rose as high as 154 per dollar, a 2%+ rally that cemented the widest intraday trading range since 2022. An afternoon sell-off saw the yen close at ~156 per dollar. The original decline to less than 160 per dollar stemmed from delayed rate cut expectations in the US, combined with an unclear timeline for incremental rate hikes in Japan.

Inflation rises in Germany ahead of Euro-wide figures. German inflation was +2.4% YoY in April, the first acceleration since December, driven by higher food prices and persistently high energy costs. Commerzbank economist Ralph Solveen said, “The downward trend in the German inflation rate that has been observed for a year and a half may have come to an end for the time being.” Germany is the EU’s largest single economy, and German inflation is being closely watched as the ECB decides on next steps for monetary policy. Eurozone inflation data will be released tomorrow, with headline inflation expected to remain unchanged at 2.4% YoY.

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