U.S. Dollar mixed ahead of busy central bank week

There is a lull in hostilities between Iran and the U.S. after both sides decided to turn down the aggression following a major escalation. We have no details on progress regarding negotiations, but Saudi Arabia has been leading efforts regionally to try to end the conflict after Houthi forces began attacking on a different front. As has occurred before with de-escalation, oil prices are retreating while equity futures are rising.

While we get a reprieve from the conflict side, central bank action will characterize the week as we get the Fed’s monetary policy decision on Wednesday, followed by the Bank of England on Thursday, and closing with the crucial Bank of Japan gathering on Friday. Action for stocks will be heavy in the middle of the week, as one-third of the S&P 500 Index is scheduled to report earnings, including firms such as Apple, Amazon, and Microsoft. At the time of writing, the release of June Durable Goods Orders figures disappointed, coming in at just 0.3% when an expansion of 1.8% was anticipated. With Chinese chipmaking firms also in the headlines, there could be interesting moves across all markets as the month ends.

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JPY

The Japanese Yen continues to hover around its weakest level of all time as traders wonder if the Bank of Japan will try another intervention or ask for assistance from U.S. financial authorities. All eyes will be on the BOJ’s tone on Friday, as officials are expected to discuss their willingness to increase interest rates for the rest of the year. After Friday, there will be only three more opportunities for a BOJ 25-basis-point hike, with markets currently pricing in a 45.0% chance that they will raise borrowing costs. Economists are wondering whether it is time to reconsider another global intervention similar to the Plaza Accords of 1985, the last time multiple economies agreed to lower the value of the U.S. Dollar.

EUR

The Euro has been trying to stay steady as markets digest mixed views about the economic outlook while coping with the realities and effects of a conflict that has affected commercial trade for months. As summer progresses, nations are starting to plan ahead for winter and heating demand, with growing concern that energy supplies are alarmingly low. The Iranian facility damage, the shutoff of the Strait of Hormuz, and intense battles in the Russia-Ukraine war have only tightened the overall supply of liquefied natural gas and heating oil. This week should help assess the economic health of the eurozone, as we get Gross Domestic Product figures for Q2 on Thursday and inflation in the form of the Consumer Price Index on Friday.