The US dollar strengthened in the hours following another big US interest rate hike and a clear message from Bank Governor Jerome Powell that further hikes were necessary to bring down inflation. Accordingly, the price of the USD/JPY currency pair rose towards the resistance level 148.35, rebounding from the support level 145.67. I expect its gains to continue amid positive stability from the announcement until the reaction from the US job numbers tomorrow.
For its part, the Federal Reserve raised US interest rates by 75 basis points on Wednesday - as expected - but sent a clear signal that it was time to slow down, indicating the possibility of a move of 50 basis points in December. However, the US dollar exchange rates were well supported, with Powell sending a clear message in his press conference that although the era of mega-highs was over, more work had to be done. At the press conference following the decision, Powell said it was "too early" to consider halting rate hikes temporarily. This may have disappointed those looking for a clearer signal on the “pivot” and thus was on a consistent equilibrium with the stronger US Dollar.
Further impetus to the US dollar was provided by Powell's acknowledgment to the media that despite the Fed's willingness to slow the pace of US interest rate hikes, it will likely still need to provide more of them. Thus, rates are rising higher than previously expected, albeit in smaller increments. It is this "pricing" of the higher ceiling that helps explain the dollar's jump during the press conference. However, the Federal Reserve's Open Market Committee (FOMC) meeting in November will be remembered for adding this line to its press release. He added that "the committee will take into account the cumulative tightening of monetary policy and the delay in which monetary policy affects economic activity, inflation, and economic and financial developments."
The Fed funds rate range is now at 3.75%-4.00% and markets have been looking to finish it above 5.0% before the November meeting, indicating the possibility of a handful of future hikes. “The statement has changed significantly, with language added indicating that the Fed is now concerned about the potential impact of its previous actions,” says Ian Shepherdson, chief economist at Pantheon Macroeconomics. Thus, the Fed is slowing down but clearly seeing that there is a lot more to be done to fight inflation, so the final interest rate has risen well above 5.0%.
This has proven to be a disappointment for those looking for a pivot and thus support for the dollar.
Before that, the yen rose nearly 1% to 146.85 against the dollar on Wednesday ahead of the Fed's decision, surpassing a three-decade low of 151.95 widely believed to have forced Japan into the markets again last month. Japan's Finance Minister has continued to remind market players that the authorities have been keeping tabs and will respond to unilateral moves.
Forecast of the US dollar against the Japanese yen today:
- There is no doubt that yesterday's move helped the bulls of the USD/JPY currency pair.
- According to the performance on the daily chart below, stability above the 138.40 resistance will be important to expect the psychological top of 150.00 again.
- This will move the technical indicators towards overbought levels.
On the other hand, and over the same time period, breaking the support 145.50 will remain important to change the pair's current bullish direction. The bullish stability of the dollar-yen pair may remain until the reaction to the announcement of the US jobs numbers, which will paint the picture of the closing of the dollar's trading for this week.
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