Original article by Vuyani Ndaba | FXStreet
Title: USD/JPY Declines as US Dollar Retreats; Fed Rate Cut Expectations Await Delayed Data
The USD/JPY currency pair saw a notable decline during Monday’s trading session, driven by a broadly weaker dollar and growing investor speculation that US interest rate cuts may occur sooner than previously anticipated. The pair, which measures how many Japanese yen are needed to purchase one US dollar, slid away from recent highs as Treasury yields declined and market participants awaited crucial economic data to gauge the Federal Reserve’s next move.
Here is a comprehensive breakdown of the key developments impacting the USD/JPY pair:
US Dollar Weakness Pressures USD/JPY
– The US dollar lost ground against major currencies on Monday, prompting a dip in the USD/JPY pair.
– This decline came after multiple sessions of strength for the dollar, which had largely been supported by robust economic data and cautious Federal Reserve comments about the path of interest rates.
– Deteriorating risk sentiment and soft US data releases contributed to the weakening of the greenback.
Delayed US Macroeconomic Data Brings Uncertainty
– Investors were left in a holding pattern due to delays in the release of key US economic data, including the Consumer Price Index (CPI).
– The delayed data raised uncertainty about the timing of monetary policy moves by the Federal Reserve, making it difficult for markets to price in rate expectations with confidence.
– The shutdown of key US offices last week, due to both scheduled Veterans Day observance and technical issues, contributed to the data release postponement.
Treasury Yields Decline, Weigh on Dollar
– Falling treasury yields have been one of the main drivers behind the dollar’s dip, with the 10-year US Treasury yield easing below the psychologically significant 4.60% level.
– Lower treasury yields reduce the attractiveness of dollar-denominated assets, which in turn drags down the USD/JPY exchange rate.
– As yields soften, paired with cautious messages from Federal Reserve officials about inflation and interest rates, investor sentiment has turned more dovish.
Fed Rate Cut Bets Resurface
– Market participants have started to price in the possibility that the Federal Reserve may cut interest rates earlier than previously forecast, potentially in the first half of 2024.
– These expectations have been fueled by signs of softening inflation and continued moderation in job market momentum.
– Traders are closely watching upcoming data for confirmation, particularly CPI and PCE inflation readings, as well as jobless claims and retail sales.
Monetary Policy Expectations at a Crossroads
– Recent commentary from Federal Reserve officials suggests a wait-and-see approach, shifting from prior hawkish tones that favored further tightening.
– Fed Chairman Jerome Powell last week avoided reinforcing expectations for rate hikes, which bolstered wider risk appetite and pressured the dollar.
– With high interest rates already weighing on consumer and business activity, the Fed may opt to pause or reverse course in the coming months if inflation continues to trend lower.
Japanese Yen Strengthens Modestly
– The Japanese yen found support from dollar weakness and a reduction in overall market risk appetite.
– Despite Japan’s persistently ultra-loose monetary stance, the yen has benefited in recent sessions as traders unwind carry trades fueled by US interest rate differentials.
– Additionally, the Bank of Japan (BoJ) has signaled some openness to adjusting its yield curve control framework and increasing bond purchases, which would mark a gradual shift in its policy stance.
Key Technical Levels for USD/JPY
As the USD/JPY pair moderated lower from earlier highs near 151.70, technical analysts have identified several important levels to observe:
Support Levels:
– 150.60: A recent support zone based on prior consolidation.
– 149.90: Psychological support and a pivot area on medium-term charts.
– 148.80: Represents a more significant medium-term floor; breach of this may indicate further downside ahead.
Resistance Levels:
– 151.70: Recent
Explore this further here: USD/JPY trading.