- The US dollar rose to its highest level in a month as Treasury yields rose amid growing speculation that the Federal Reserve may be cautious about cutting US interest rates as early as March.
- Consequently, this helped the USD/JPY pair to launch strongly higher with gains that reached the 147.32 resistance level, the highest level since more than a month.
- Moreover, the weak expectations for the Bank of Japan's imminent exit from negative interest rate policy also contributed to the strength of the gains.
At the same time, the Bloomberg Dollar Spot Index rose as much as 0.7% to its highest level since December 13, as the euro fell to its lowest level in a month against the dollar. Also, treasury yields rose across the curve as trading resumed after the US holiday, to track the rise in European yields on Monday after hawkish comments from policymakers. In general, an increasing number of investors and analysts say that markets are pricing in too many interest rate cuts from the world's major central banks. Meanwhile, Federal Reserve Chairman Christopher Waller is scheduled to deliver a speech later today that will provide more clues about the thinking of the US central bank.
Commenting on the performance of the dollar, Christopher Kier Lomholt, head of FX research at Danske Bank in Copenhagen, said: “We see the rebound in the dollar as a reflection of markets pricing in lower expectations for interest rate cuts.” He added, “The US economy appears to be on a stronger footing than most of its peers, which is also contributing to the safe-haven status of US long-term assets.”
Overall, markets are pricing in 159 basis points of US Federal Reserve cuts by the end of the year, three basis points lower than Monday. Nearby, the yield on US 10-year bonds rose by as much as seven basis points to 4%. Also yesterday, European Central Bank Board Member Robert Holzman said in an interview that the threats resulting from ongoing inflation and geopolitical risks will prevent the European Central Bank from lowering interest rates this year. Obviously, markets trimmed their bets on monetary easing in response, pricing in 148 basis points of cuts this year from 153 basis points on Friday.
In general, the price of the US dollar has risen by about 1.8% since the beginning of 2024, but options traders are cautious when it comes to further strength in the near term. Recently, the one-week risk reversals in the Bloomberg Dollar Spot Index, a measure of market condition and sentiment, have reached their highest bearish levels in two weeks. On a one-month basis, risk reversals are still trading near a one-month high.
USD/JPY Technical Analysis and Expectations Today:
As we mentioned before, the success of the bulls in pushing the price of the currency pair US Dollar against the Japanese Yen ”USD/JPY” towards the resistance 147.50 will increase expectations of the opportunity to move towards the next most important psychological resistance 150.00. Obviously, this may happen if the US retail sales numbers come stronger than all expectations and speculation increases that the Central the Japanese will stay away for a while longer about the ultra-accommodating policy change. Shortly, we still prefer to buy USD/JPY from every falling level.
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