USDJPY is moving in Ascending channel and market has rebounded from the higher low area of the channel
USD/JPY Holds Steady Amid Market Dynamics
Introduction
The USD/JPY currency pair continues to show strength, maintaining its position around 161.40 during Wednesday’s early Asian session. Federal Reserve Chairman Jerome Powell has indicated that while US inflation is cooling, more evidence is needed before any decisions on rate cuts are made. The ongoing monetary policy divergence between Japan and the US is exerting selling pressure on the Japanese Yen. Let’s delve into the factors influencing the USD/JPY pair, including economic indicators and market expectations.
Fed’s Stance on Inflation and Rate Cuts
Inflation Cooling but More Evidence Needed
Federal Reserve Chairman Jerome Powell has recently highlighted that inflation in the US is showing signs of cooling. However, he emphasized the need for more concrete evidence before the Fed can consider cutting interest rates. Powell mentioned that the central bank wants to be confident that inflation is moving sustainably toward the 2% target before starting to loosen policy.
Market Expectations and Reactions
Despite Powell’s cautious tone, financial markets have adjusted to anticipate two rate cuts this year. Traders are now pricing in a nearly 63% chance for a 25 basis points rate cut from the Fed in September, up from 58% earlier. This anticipation is based on recent economic data, including weaker US Manufacturing PMI and softer PCE inflation reports, which have spurred expectations of a rate cut.
Monetary Policy Divergence and Its Impact
Japan’s Monetary Policy and FX Intervention
The divergence in monetary policies between the Bank of Japan (BoJ) and the Federal Reserve is playing a significant role in the weakening of the Japanese Yen. Japanese authorities are concerned about the rapid and one-sided FX moves affecting the Japanese economy. They might intervene in the FX market to prevent further depreciation of the JPY, which could underpin the currency in the near term and create a headwind for the USD/JPY pair.
USDJPY is moving in Ascending channel and market has rebounded from the higher low area of the channel
Market Focus on BoJ’s Actions
Market players remain focused on the possible foreign exchange intervention from the BoJ. The USD/JPY pair has reached a new high near 161.75 during the early Asian trading hours on Wednesday. However, any intervention by the BoJ could cap the pair’s upside.
Economic Indicators and Their Influence
Japan’s Jibun Bank Services PMI
The final print of Japan’s Jibun Bank Services PMI is due on Wednesday. This data will be closely watched by market participants as it provides insights into the health of Japan’s service sector. A strong PMI reading could support the JPY and impact the USD/JPY pair.
US Economic Data
On the US docket, several key economic indicators are scheduled for release, including the US June ADP Employment Change, ISM Services PMI, and the FOMC Minutes. These reports will provide further insights into the US economy’s performance and could influence market expectations regarding Fed rate cuts.
Summary
The USD/JPY pair continues to trade on a stronger note, buoyed by the monetary policy divergence between the US and Japan. While the Fed’s cautious approach to rate cuts keeps the US Dollar supported, concerns over rapid FX moves and potential intervention from Japanese authorities could provide some support for the Japanese Yen. As market participants await key economic data from both countries, the USD/JPY pair remains poised for potential volatility. Keeping an eye on the BoJ’s actions and the upcoming US economic indicators will be crucial for traders navigating this dynamic currency pair.
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