Japanese Yen Drops To 38-Year Low, German Inflation Falls Beyond Expectations

With the July 4th bank holiday in the US and the UK elections on the same day in the spotlight, the week’s beginning is relatively light in data releases. European stock markets still try to digest the result of the first round of the French parliamentary elections which had President Emmanuel Macron’s party finishing in third place and a change of guard in the parliament becoming increasingly possible. 

Earlier on Tuesday morning, the Japanese yen hit a 38-year low, trading at ¥161.745 against the US dollar, the lowest level recorded since December 1986. A Reuters report attributed the Japanese currency’s fall to expectations for Donald Trump winning the presidency, resulting in higher tariffs and government borrowing. In his remarks, Japanese finance minister, Shunichi Suzuki, said that the government watches closely the FX markets, but did not suggest any upcoming intervention to stabilise the yen’s exchange rate against other major currencies.

German CPI Inflation Drops In June

The German statistics office Destatis revealed on Monday that headline inflation in Germany fell to 2.2%, on an annualised basis, in June, surpassing market expectations for a 2.4% reading. The German economy is under pressure as a combination of high interest rates imposed by the European Central Bank (ECB) and elevated inflation figures in the last year weighed on consumer activity, hurting the local economic growth.

Commenting on the dropping inflation numbers, ING analysts noted that “looking ahead, the stickiness of inflation at slightly too high a level looks set to continue as favourable energy base effects are petering out while, at the same time, wages are increasing. With recent new wage demands, it is hard to see German wage growth coming down in the second half of the year.”

ECB's De Guindos: No Pre-Determined Path On Interest Rates

The European Central Bank’s vice president Luis De Guindos told CNBC reporters that the eurozone’s central bank does not follow a pre-determined path when it comes to borrowing costs. De Guindos stressed that uncertainty remains high and called for the governing board to be very prudent when making decisions.

The Spanish policymaker stressed that inflation levels will likely have ups and downs during 2024 and forecast that the euro bloc’s economy will be stronger in the second half of the year when compared to the first one.

RBA Minutes: Holding Rates Steady Better Than Hiking

The Reserve Bank of Australia (RBA) kept interest rates unchanged in its last board meeting, despite data showing inflation rising again. The release of the RBA meeting minutes earlier today revealed that its policymakers see a “hike might be needed if board judged policy was not ‘sufficiently restrictive’”, adding that “a material rise in inflation expectations could require significantly higher rates.”

The RBA’s board suggested that “Q1 GDP growth had been very weak, wage growth looked to have peaked.” Commenting on the state of the Australian economy, policymakers noted that “economic uncertainty meant it was difficult to rule in or out future changes in policy,” and suggested that recent data wouldn’t be enough to change the bank’s outlook that forecasts inflation returning to targeted levels in 2026.

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