Markets await us cpi as bond yields rise

Federal Reserve Chair Jerome Powell’s recent congressional testimony set a cautious tone, suggesting that the strong US economy coupled with persistent inflation doesn't justify an immediate reduction in interest rates. This led to a market shift, where expectations of a rate cut by the Fed were scaled back. Now, market participants are anticipating a single rate cut by September 2025, down from the two cuts previously expected this year.

Currencies

The Japanese yen continued its downward trajectory for a third day, falling by 0.7% to 153.63 per dollar. The decline comes amidst rising concerns over Japan's potential inclusion in former President Trump's tariff plans. The Japanese government has formally requested an exemption from the newly imposed 25% duties on steel and aluminum, underscoring growing trade tensions and uncertainty surrounding Japan’s economic outlook.

Bank of Japan Governor Haruhiko Ueda expressed concerns over ongoing inflationary pressures, particularly in food prices. Although the BOJ continues to target a 2% inflation rate, Ueda noted the negative impact on consumers' daily lives due to rising prices. This follows the BOJ's decision to raise short-term rates to 0.5%, the highest level in 17 years, indicating the bank’s cautious stance in managing inflation while balancing economic growth.

EUR/USD remained relatively stable around 1.0360 during Wednesday’s Asian trading hours, after gaining in the previous session. However, the pair could face downward pressure as the Trump administration moves forward with plans for reciprocal tariffs through executive action, bypassing Congress. These trade policy shifts could add more volatility to the currency pair in the near term.

Bond yields around the globe climbed, driven by investor repositioning ahead of upcoming US inflation data. The 10-year US Treasury yield surged to 4.55%, with similar increases observed in Japanese and Australian sovereign bonds. These movements reflect market expectations that central banks, particularly the Fed, are likely to keep interest rates higher for an extended period, which will affect investor sentiment and future economic forecasts.

Markets are gearing up for the release of key US Consumer Price Index (CPI) data, which will provide further insights into inflationary trends. Powell’s second day of congressional testimony is also highly anticipated, with particular focus on any comments regarding the impact of trade tensions on inflation forecasts.

In the oil market, the OPEC monthly report and crude oil inventory data will be scrutinized for signs of potential price volatility.