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USD Index Boosted By Strong US GDP, Late JPY Surge Before BOJ Decision

FOREX
  • Stronger than expected GDP data on Thursday provided a strong boost to the greenback with the USD index showing gains of around 0.85% as we approach the APAC crossover. A more cautious ECB also weighed on the Euro, which has prompted EURUSD to shed around 170 pips and significantly reverse an early morning rally.
  • Second quarter data from the US showed the economy grew 2.4% Q/q, well ahead of the 1.8% estimate. Combined with a lower GDP price index, the soft landing theory gained traction which initially provided a firm bid for both the US dollar and major equity indices.
  • The USD bid has prevailed and while sitting slightly off session highs, the DXY has resumed its recovery and approaches the June lows around the 102 mark.
  • The greenback shift is most notable against EUR, GBP and CHF which have all declined around 1%. USD gains had been entirely broad based before a late report from the Nikkei regarding the Bank of Japan prompted a punchy surge for the Japanese Yen.
  • USDJPY fell aggressively from around 141.00 to 139.21 lows following reports that the Bank of Japan will discuss tweaking its yield curve control policy at a policy board meeting Friday. This would apparently allow “long-term interest rates to rise beyond its cap of 0.5% by a certain degree”, Nikkei is said to have learned.
  • While the piece only mentions potential discussions and shows no attribution, the substantial JPY bounce places Friday’s BOJ meeting/decision at the top of the event risk agenda. 139.11, the July 20 low and 138.77 the July 19 low are the immediate reference points on the downside for USDJPY before key support at 137.25.
  • As well as the BOJ, European preliminary CPI data is due Friday, as well as US Core PCE, US Employment Cost index and Canadian GDP.
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