BOJ Policy Tweaks Send Shockwaves Through Financial Markets

The financial markets experienced a rollercoaster ride today as the Bank of Japan (BOJ) announced potential policy tweaks, crushing hopes of stable central bank adjustments. Market sentiment turned around following the report, with key assets and currencies experiencing significant movements. Here are the key factors that influenced today's trading and the major news that shook the market.

Key Factors for Today

• BOJ's Policy Tweaks Crush Hope for Stable Central Bank Adjustments
• Gold Takes a Dive As Treasury Auction Disappoints, US GDP Remains Strong
• Market Reverses as BOJ Considers YCC Modifications, USD/JPY Volatile
• EUR/USD Drops 1% Following ECB Rate Hike, Christine Lagarde Speaks Out
• Australian Retail Sales Slump, RBA Hike Uncertainty Rises

Market Movers

• The US Q2 GDP exceeded economist consensus at 2.4%, supporting the Fed's GDPNow tracker. However, the Treasury's auction of 7-year notes disappointed, leading to a decline in interest and boosting the dollar's safety appeal.
• Reports of BOJ considering modifications to its Yield Curve Control (YCC) policy sent shockwaves through the markets. Yields surged, dampening stock markets and bolstering the yen. USD/JPY experienced heightened volatility, adding uncertainty to the currency pair's outlook.
• The ECB hiked rates by 25 bps, but the accompanying statement surprised with its shift away from raising rates to restrictive levels.
• Retail sales in Australia fell 0.8% in June, pointing to depressed demand due to cost-of-living pressures. Slow growth in Q2 PPI raised doubts about an RBA rate hike, causing the Aussie to slide significantly.

Economic Calendar

• German GDP
• German Inflation
• Core PCE
• Personal Income
• Personal Spending

The Big News

Bank of Japan's Potential Policy Tweaks Spark Market Turbulence

The announcement of potential policy tweaks by the Bank of Japan triggered significant market turbulence. Investors had hoped that central banks were nearing the end of rate hikes, following supportive comments from the Federal Reserve and the European Central Bank. However, the BOJ's deliberation over modifications to its YCC policy suggested the possibility of rate increases in the future. The news led to a generalized rise in yields, weighing on global stock markets and strengthening the Japanese yen. USD/JPY was particularly volatile, experiencing wild swings between 141.30 and 138.79 before settling at 139.41.

European Central Bank's Rate Hike Decision Spurred Uncertainty and Sent EUR/USD Diving

The European Central Bank's decision to hike rates by 25 bps was in line with expectations. However, the change in the accompanying statement raised eyebrows as it removed references to bringing rates up to restrictive levels. ECB President Christine Lagarde's subsequent comments added to the confusion, as she mentioned the possibility of keeping rates at a restrictive level instead of raising them further. This uncertainty, combined with dollar strength, caused EUR/USD to plunge 1% to $1.0975.

Australian Economy Struggles with Retail Sales Slump and Rate Hike Speculations

The Australian economy also faced challenges as retail sales slumped 0.8% in June, falling short of expectations. Analysts attributed the decline to the burden of the cost of living, which dampened consumer demand. Slow growth in Q2 PPI added to the concerns, leading to speculation about the likelihood of an RBA rate hike in the upcoming meeting. As a result, the Australian dollar slid 1% to $0.6658, with the potential for further decline towards 66 cents.