May 17, 2024

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Where is the limit for the USD/JPY?

The dollar is back on the horse and aims to continue to rally on all fronts, including in tandem with the yen. How far can the USD/JPY go if there are intervention barriers in its way? 

Today it is difficult to predict how the situation will develop in the future. It provokes volatility in the financial markets and helps traders to get advantage of it.. But in order to stay in the black, one has to understand how the market works and make the right decisions. To trade successfully on this currency pair, a list of top rated brokers will be useful.

The dollar continues to strengthen

The U.S. central bank raised interest rates by 75 bps, again on the equator of the working week. but made it clear that it might be approaching a tipping point in its aggressive anti-inflationary campaign.

Such a dovish remark literally undermined the greenback’s position in all directions overnight. A little later, however, the mood in the market changed: dollar bulls received a soothing pill from Fed Chairman Jerome Powell.

The official dispelled traders’ fears about a possible slowdown in the pace of tightening. He stated categorically that it was too early to discuss a slowdown and hinted at higher final interest rates in America.

In light of J. Powell’s recent comments, the market has revised its U.S. interest rate forecast upward. Investors now expect the rate to peak at 5.15% by next June.

  • The increase in hawkish sentiment served as an excellent driver for 10-year U.S. government bond yields. The index jumped to 4.16%, contributing to a sharp rise in the dollar.
  • On Friday night, the DXY index rose 0.8% to test its highest level in almost 2 weeks at 113.15. This put GREENBACK on track for a weekly gain. 
  • The dollar has already gained 2% against its major peers since Monday. This dynamic has not been seen since September.
  • The USD showed a parabolic rise against the pound sterling (+2%) and also performed well against the euro, Australian and New Zealand dollars, rising 0.7% against all currencies.
  • GREENBACK gained the least against the yen, by 0.2%. Its rise was limited by the increasing risk of intervention by the Japanese government.

USD/JPY outlook

On Friday morning Japan’s Finance Minister Shunichi Suzuki once again repeated his warning to currency speculators. He said that the authorities would not put up with a sharp weakening of the yen and would take all necessary measures in case of a new attack on the JPY.

The increased threat of intervention on the part of the Ministry of Finance of Japan was not a surprise for traders. At least those traders who became participants in the Leaders in Trading 2022 award. Also, the head of the Fed made it clear that the final level of interest rates in the U.S. may be higher than previously expected. The double pressure leaves no chance for the JPY, so there is nothing left for the Japanese government to do but to be fully armed. 

Hoping that majors will get a strong boost from U.S. economic data is probably not a good idea. Most likely, the fresh statistics on inflation will be able to inspire the dollar bulls for new feats. If the market does not see signs of a slowdown in consumer price growth in November, it will be another argument for the Fed in favor of further aggressive tightening.

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