Asian Markets Steady at Two-Year Highs; Pound Stable Ahead of BoE Rate Decision | Daily Market Analysis

Key events:

• New Zealand - GDP (QoQ) (Q1)
• Switzerland - SNB Interest Rate Decision (Q2)
• UK - BoE Interest Rate Decision (Jun)
• USA - Initial Jobless Claims
• USA - Philadelphia Fed Manufacturing Index (Jun)
• USA - Crude Oil Inventories

Asian stocks paused on Thursday, remaining near their highest levels in two years as traders awaited further US policy signals. Meanwhile, the British pound held steady ahead of a Bank of England meeting, where interest rates are expected to stay unchanged.

Japan's Nikkei slipped by 0.63%, and Chinese stocks also declined, with the blue-chip index falling 0.34%. Hong Kong's Hang Seng index dipped 0.14%.

The absence of US market activity resulted in a subdued session, but the return of UK inflation to 2% added some excitement. However, higher services inflation has tempered expectations of an August rate cut by the Bank of England. Despite this, the FTSE 100 managed to achieve a slight gain in thin trading, buoyed by the stronger performance of Asian markets overnight.

The Australian Dollar remained in positive territory for the third straight day on Thursday, bolstered by the Reserve Bank of Australia's hawkish stance during its June meeting. Despite this, the RBA acknowledged the uncertain economic outlook and cautioned that achieving its inflation target would not be straightforward. Traders are now looking ahead to Friday's preliminary Australia’s Judo Bank PMI for May. Any indications of economic weakness could lead the central bank to consider lowering borrowing costs, potentially dragging the AUD down.

Gold prices rose to a one-week high during the Asian session on Thursday, although they lacked strong bullish momentum and remained below the 50-day Simple Moving Average resistance level. Recent US macroeconomic data suggested easing inflationary pressures and a slowing economy, fueling speculation that the Federal Reserve might cut interest rates twice this year. This has driven demand for the non-yielding yellow metal. Additionally, geopolitical tensions and renewed political uncertainty in Europe have provided further support for gold as a safe-haven asset.

The USD/JPY pair consolidated around the 158.00 mark during the Asian session on Thursday, staying close to its highest level since late April reached last week. The mixed fundamental backdrop advises caution before betting on a continuation of the recent upward trend observed over the past two weeks. The Japanese Yen has been weakened by the Bank of Japan's decision to delay discussions on JGB tapering until the next meeting. Furthermore, the global bullish tone in equity markets has reduced demand for the safe-haven JPY, supporting the USD/JPY pair. However, speculation about potential intervention by Japanese authorities to strengthen the domestic currency, along with ongoing geopolitical tensions and political uncertainty in Europe, could limit significant declines for the JPY.

The USD/CAD pair experienced mild gains around 1.3710, breaking a four-day losing streak during early Asian trading hours on Thursday. The US Dollar's modest recovery might be limited by diminishing expectations of a Fed rate cut this year. The Bank of Canada's latest Summary of Deliberations revealed concerns among policymakers about downside risks and the potential for increasing divergence between Canada and the US. The BoC recently cut its policy rate to 4.75% from 5%, the first reduction in four years. Investors anticipate at least two more rate cuts before the end of 2023, with a 60% probability of a quarter-point cut in July, according to Refinitiv data.

Bitcoin's price dipped below $65,000 on Wednesday, trading at $64,800 with no signs of recovery in sight. This recent price action has further shaken investor confidence, despite Bitcoin's increased dominance in the broader crypto market.

Although some investors have predicted a price reversal, increased activity from large holders, known as whales, might be a significant factor in Bitcoin's price decline. Crypto tracker Whale Alerts reported several BTC deposits exceeding $1 billion in the past few hours. This comes on the heels of numerous substantial transactions over the last few days, putting downward pressure on the asset's price.

Additionally, crypto analyst Axel Adler noted that miners have moved over 71,000 BTC through over-the-counter desks. "A growing balance at OTC desks can be associated with increasing selling activity outpacing Bitcoin demand," he explained.