Japanese policymakers are ready to intervene to support the yen. In the US, inflationary pressures are expected to ease

On Friday, Moody’s Investors Service downgraded its outlook on the US credit rating from stable to negative, citing rising budget deficits and political polarization. The US lawmakers have until Friday evening this week to pass a temporary spending bill before funding runs out and the government shuts down.

Today, the US will release its CPI report. The Consumer Price Index is on the US Federal Reserve’s list of monitored indicators when regulating monetary policy. This report will measure the Fed’s progress in the fight to reduce inflation. Economists expect consumer inflation to show an increase of 0.1% on a monthly basis, while on an annualized basis, it is expected to decline from 3.7% to 3.3%. A sharper weakening in inflation could lead to renewed talk of a rate peak, fueled by the October jobs report, which pointed to weakening labor market conditions. But a cooling in demand is needed for Fed officials to have confidence that they are convincingly moving toward an inflation target. Demand is expressed in consumer spending, and that is usually retail sales and other related reports on how Americans spend money. Therefore, tomorrow’s retail sales data will give a better indication of the US Fed’s future trajectory.

Inside the ECB, there is growing uncertainty over future plans. A representative of the ECB Governing Council, Kazaks, said yesterday that further ECB policy tightening seems to have become less necessary. His colleague, ECB Vice President Gindos, on the other hand, did not share this thought. Gindos said it was “premature” to discuss interest rate cuts because “we expect a temporary rebound in inflation in the coming months as the base effect of the sharp rise in energy and food prices in the fall of 2022 fades.”

Crude oil and gasoline prices rose moderately on Monday. A weaker dollar on Monday provided support for energy prices. In addition, expectations of increased fuel demand in the US during the Thanksgiving holiday are a favorable factor for crude oil prices.

Asian markets were predominantly rising yesterday. Japan’s Nikkei 225 (JP225) added 0.05% for the day, China’s FTSE China A50 (CHA50) decreased by 0.44%, Hong Kong’s Hang Seng (HK50) added 1.30% for the day, and Australia’s ASX 200 (AU200) was negative by 0.40% for Monday.

Japan’s Finance Minister Shunichi Suzuki said on Monday that policymakers will respond to sharp fluctuations in the yen as needed. The Bank of Japan is unhappy with the recent decline in the yen, which has fallen by 1.45% against the US dollar in the past week alone. According to analysts, if the yen breaks through the 152 mark, there is a high probability of currency intervention by the Japanese authorities.

Goldman Sachs Group Inc. expects inflation in Australia and New Zealand to fall to just below 3% by the end of 2024, which would be in line with both central banks’ targets and pave the way for lower interest rates. The cooling in prices will be driven by global commodity inflation, lower labor demand, and wage pressures. This would open the door for both central banks to begin easing monetary policy from late next year. Goldman’s view diverges sharply from forecasts by Australia’s central bank, which last week raised interest rates to a 12-year high of 4.35%, predicting CPI will exceed its 2-3% target until mid-2025. On Monday, acting Reserve Bank of Australia assistant governor Marion Kohler said the next phase of inflation’s return to target is likely to be more “protracted.”