Goldman Sachs is out with its near-term forex outlook
Investing.com-- Most Asian currencies firmed on Friday, as risk appetite improved marginally after the White House signaled that President Donald Trump will only decide on joining the Iran-Israel war in two weeks.
The dollar retreated after the announcement, giving back some gains made earlier this week after the Federal Reserve struck a hawkish note at its latest meeting.
Trump will only decide on whether to strike Iran within the next two weeks, the White House said, helping clear some concerns that a U.S. strike on Iran– which is expected to be a major escalation in the conflict– was imminent.
Improving risk appetite limited gains in the Japanese yen, although the currency was buoyed by hotter-than-expected consumer price index inflation data, as well as hawkish minutes from the Bank of Japan.
China’s yuan showed little reaction to the People’s Bank leaving its benchmark loan prime rate unchanged, with the USDCNY pair falling 0.1%.
The Australian dollar’s AUDUSD pair rose 0.3%, recovering mildly from sharp losses in the prior session, while the South Korean won’s USDKRW pair slid 0.7%.
The Indian rupee’s USDINR pair fell 0.3%, while the Singapore dollar’s USDSGD pair fell 0.2%.
Japanese yen firms on hot CPI, hawkish BOJ signals
The Japanese yen’s USDJPY pair fell 0.2%, as the currency was buoyed by increased bets on more interest rate hikes by the BOJ.
National core CPI surged past expectations to a near 2-½ year high in May, while underlying inflation hit an over one-year high.
The print was followed by the minutes of the BOJ’s early-May meeting, which showed policymakers largely in support of sticking to the central bank’s rate hike path.
The BOJ signaled earlier this week that it will raise interest rates further to keep up with rising inflation. Friday’s data spurred increased bets that such a scenario will play out later this year.
But analysts were uncertain over just when the BOJ could hike rates next. The central bank still signaled caution over U.S. trade tariffs and their impact on the Japanese economy, as trade negotiations between Tokyo and Washington continued.
Gains in the yen were also held back by some improvement in risk appetite.
Dollar retreats, but still set for weekly gains on hawkish Fed
The dollar index and dollar index futures both fell 0.2% on Friday, pressured in some measure by improving risk appetite. The dollar had traded largely rangebound on Thursday on account of a U.S. market holiday.
But the greenback was still trading up 0.4% this week, having benefited from hawkish signals from the Fed on Wednesday.
While the central bank left interest rates unchanged as widely expected, Chair Jerome Powell remained largely non-committed to any future cuts.
Powell maintained the Fed’s forecast for two rate cuts in 2025, but trimmed the outlook for rate cuts in 2026. The Fed Chair also warned that Trump’s trade tariffs could push up inflation in the coming months, giving the Fed even less headroom to cut rates.