Title: USD/JPY Plunges Over 2% Amid Weak US Economic Data, Falls Below 147.50
Author: Vikas Kaushal (Credit: FXStreet)
The USD/JPY currency pair experienced a sharp decline, dropping over 2% in a single day, largely driven by a series of weaker-than-expected US economic indicators. This pronounced downward movement caused the pair to fall below the psychologically important 147.50 level, marking one of the most significant declines in recent sessions. Investor sentiment was rattled as data pointed to a cooling US economy, suggesting that the Federal Reserve may be approaching the end of its rate-hiking cycle.
Here is an in-depth look at the USD/JPY price action, the macroeconomic drivers behind the move, and what traders may anticipate going forward.
Current Overview of USD/JPY Move
– The USD/JPY dropped over 2% intraday, falling from near 150.50 to below 147.50 on Thursday.
– This steep decline was triggered by several disappointing US economic releases, including Initial Jobless Claims, ISM Manufacturing PMI, and Personal Consumption Expenditure (PCE) data.
– The Japanese yen gained strength as a safe-haven asset amid broad dollar weakness, with risk sentiment also playing a role in causing traders to recalibrate expectations around the Federal Reserve’s future path.
Key US Economic Indicators Driving the Move
Several reports released on Thursday contributed to the bearish momentum in USD/JPY:
1. US Initial Jobless Claims
– U.S. Initial Jobless Claims came in at 229,000 for the week ending July 27, up from 221,000 a week earlier.
– The increase in jobless claims indicates softening labor market conditions, undermining expectations for continued labor market resilience.
– A weakening jobs market typically signals reduced inflationary pressures, thereby reducing the urgency for the Fed to keep raising interest rates.
2. ISM Manufacturing PMI
– The ISM Manufacturing PMI for July registered 46.4, lower than the prior figure and missing forecasts.
– This reading suggests that the US manufacturing sector remains in contraction territory for the ninth consecutive month.
– Key sub-components such as new orders and employment also showed declining momentum.
3. PCE Price Index
– The Personal Consumption Expenditures (PCE) Price Index — the Federal Reserve’s preferred inflation metric — also showed signs of easing.
– Core PCE fell from 4.6% to 4.1% on a year-over-year basis in June.
– Monthly PCE growth was just 0.2%, in line with expectations but still reinforcing the trend of declining inflation pressures.
These macroeconomic data points collectively fueled speculation that the Fed might pause or even potentially pivot on its monetary tightening policy. Fading expectations of more rate hikes weakened the US dollar significantly, contributing to USD/JPY’s plunge.
Federal Reserve Policy Outlook
– The Federal Reserve raised interest rates by 25 basis points in July, taking the benchmark federal funds rate to a target range of 5.25% to 5.5%.
– However, Fed Chair Jerome Powell emphasized a data-dependent approach for future policy decisions.
– Deterioration in key economic indicators like labor market strength and inflation momentum raises the likelihood of a pause in future rate hikes.
– Market pricing now reflects a strong probability that the Fed will hold rates steady at the September FOMC meeting.
Lower rate hike expectations undermine US dollar yields, which in turn puts pressure on the USD/JPY pair, especially when paired against the yen, which tends to attract flows in risk-off environments.
Technical Analysis of the USD/JPY Pair
From a technical perspective, the USD/JPY faces increasing downside risks after its sharp drop below the key support level at 147.50. The losses accelerated after the breach of critical moving averages and trendlines.
Key Technical Highlights:
– The daily chart shows a clean
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