North American FX Open - Yen boosted by hawkish talk from BoJ's Nakagawa

The Yen was the main mover overnight, after some hawkish commentary from the Bank of Japan's Nakagawa. He remarked that real rates are still at a very low level and even with another rate hike financial conditions would be easy. Nakagawa added that the FX impact on inflation is bigger than before and that the pace of rate adjustments will depend on the economy and prices.

In response Usd/Jpy tumbled down to 140.71 from the 142.20/30 area, its lowest level of 2024 so far. We have seen a bit of a pullback to 141.70, but traders are talking about a near-term test of the Dec 2023 lows down at 140.25. Remember the last time Usd/Jpy traded below the 140 level was back at the end of July 2023.

The Dollar was also an independent loser after the debate between VP Harris and former President Trump prompted a minor shift in betting markets in favor of Harris. Donations to Democrats reportedly surged after the event, while Harris gained the endorsement of Taylor Swift afterwards and a CNN poll showed 63% of viewers believed Harris won.

Attention now turns to today's US CPI report for August. While inflation readings have retreated in importance of late, a large scale slowing in the headline rate to 2.5% y/y from 2.9% y/y is expected. However, the core rate is set to remain at 3.2% y/y. We suspect only a significant downside miss would convince the Fed to start their easing cycle in a week's time with a 50bps move.

The UK data dump for July was a disappointment, with GDP coming in flat vs the 0.2% consensus forecast. That is the second consecutive flat reading. Both IP and manufacturing also disappointed to the downside.

Overnight, RBA's Assistant Governor Sarah Hunter said. the board has been surprised by the 'limited' easing this year in some key employment indicators.

The US CPI print is the sole release scheduled and the Riksbank's Breman is the solitary central bank speaker on the calendar.

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