BOJ sold US$126.1 million to the market in July

The Jamaican dollar appreciated by 0.81 per cent relative to the United States dollar last week.

Week over week, the local currency strengthened with the US dollar selling rate moving from J$153.71 on August 5 to J$152.47 on August 12. The appreciation was fueled by higher USD sales into the market as brokers compete for Jamaican dollar in a tight market.

In contrast, USD money market continues to reflect stability and a moderately liquid position. Broker demand for USD remains at 30 days and longer-tenured funds with some brokers offering as high as 5.00 per cent for one year to clients.

Despite positive signs last week that inflation in the US could be easing, inflation remains high and well above its target range, as such the Federal Reserve and Bank of Jamaica are unlikely to pivot from their interest rate hikes.

However, markets have started to moderate their expectations for Fed rate hikes. Still, the positive data does not mean it is “mission complete”.

Key market strategists are of the view that the Fed is nowhere near putting the brakes and turning dovish on rate hikes, given the current data.

Additionally, Fed officials have publicly declared their support of the rate hikes until inflation is subdued.

With the rate hikes and the slowing US economy along with reports of current liquidity strains in US markets, USD liquidity locally could be adversely affected in the upcoming months.

However, improved tourism inflows and remittances along with Bank of Jamaica’s (BOJ) periodic intervention in the FX market have been supporting USD liquidity. The BOJ sold US$126.1 million to the market in July.

However, there has been no intervention since the beginning of August. It is expected that the BOJ will continue to intervene as necessary to maintain stability in the foreign exchange market.