- The value of the dollar fell through most of 2023 as low inflation allowed the Federal Reserve to ease into the rate-raising cycle, finally allowing it to keep interest rates unchanged in June.
- However, the dollar has regained some of its gains in recent days amid continued strong economic data that suggested the Fed may struggle to return inflation to its 2.0% target on a sustainable basis.
During yesterday's trading, the price of the US dollar currency pair fell against the Japanese yen, USD/JPY, to the support level of 139.92, based on the resistance level of 141.18, and settled around the level of 140.32 at the time of writing the analysis. The dollar was sold off I see as limited after the US Federal Reserve raised its key interest rate on Wednesday for the 11th time in 17 months, a series of hikes aimed at curbing inflation but also carries risks of going too far and triggering a recession.
In a statement, the Fed said the US economy is "growing at a moderate pace," up slightly from its assessment in June. Speaking at a news conference, Bank Governor Jerome Powell revealed that economists at the Federal Reserve no longer expect a recession. In April, the minutes of the central bank's March meeting revealed that economists envisioned a "moderate" recession later this year.
He added that “Given the resilience of the economy recently, they no longer expect a recession.”
The main question for the Fed is whether the increase passed yesterday will be the last or if it will rise again later this year. Powell said in his press conference that the central bank has not made any decisions on any interest rate increases in the future. However, he made it clear that the fight against inflation is not over yet.
"The process of bringing inflation down to 2% still has a long way to go," Powell said.
He stressed that Fed policymakers would assess the range of incoming economic data in determining what action, if any, to take at their next meeting. When officials last met in June, they indicated that they expected to raise interest rates twice more. Powell noted that by the time they meet again on September 19-20, they will have more economic data: two more reports on inflation, two reports on employment and unemployment and updated numbers on consumer spending and wages.
USD/JPY Technical Outlook
The selling operations that took place in the recent trading sessions did not remove the USD/JPY currency pair from the opportunity to rise so far. According to the performance on the daily chart below, this will not happen without moving toward the support levels of 138.80 and 137.90, respectively.
As I mentioned before, the psychological resistance at 140.00 will continue to support the bulls' control over the direction. The USD/JPY may remain in a narrow range until the reaction to the results of the US economic data today and then the announcement of the policy of the Japanese central bank tomorrow, Friday. The policy divergence between the two banks will be in favor of a strong upward rebound once again.
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