Market Review: Yen Depreciation, Fed's Rate Strategy, Gold and Oil Gains Highlight Financial Landscape
The Japanese yen depreciated to 158 per dollar, a six-week low, after the BoJ kept rates unchanged in June, following its first rate hike in seven years in March. The BoJ will continue bond purchases at the current rate, deferring any reduction decision to July. BoJ Governor Kazuo Ueda reiterated plans to gradually reduce the balance sheet, but the timing is uncertain. Former BOJ member Takahide Kiuchi suggested the bank will use the flexible bond purchase program as a tool for managing growth and inflation risks.
The dollar index stabilized around 105.2 on Friday, poised for a second weekly advance, driven by concerns that the Fed might keep higher rates for longer. Despite softer US consumer inflation and a decline in producer prices, the Fed left its policy rate unchanged, signaling only one rate cut this year. Weekly initial unemployment claims surged to a ten-month high. The dollar is expected to post its largest gains against the euro due to political uncertainties in Europe, while also advancing against the yen and yuan but weakening against the sterling, Aussie, and Kiwi
Gold stayed above $2,300 per ounce on Friday, on track for its first weekly increase in four weeks. Investors weighed softer US inflation data against the Fed's interest rate projections. US PPI for May unexpectedly declined due to lower energy costs, following cooler consumer inflation data. The latest FOMC dot-plot projections showed an average expectation of one 25 basis point rate cut this year, with some members projecting no cuts.
WTI crude futures dipped towards $78 per barrel on Friday but were set for a weekly gain of over 3%, supported by a robust global demand outlook. The US EIA raised its 2024 global oil demand growth forecast to 1.1 million barrels per day. OPEC maintained an optimistic outlook for oil demand growth due to expected increases in travel and tourism. Russia committed to its OPEC+ output commitments after surpassing its quota in May. US crude, gasoline, and distillate inventories rose more than expected last week.