Throughout this important week’s trading, the USD/JPY currency pair is settling around and above the 139.00 resistance. It is supported by the expectations of a US interest rate hike, as Federal Reserve Chairman Jerome Powell last Friday triggered a sell-off in stock markets when he said that the Fed will do.” Whatever it takes” to bring inflation back to the 2.0% target, even if that could cause pain in terms of lower growth and higher unemployment.
The comments, made at a Jackson Hole symposium, sent investors priced in a sharp contraction in global growth.
Those concerns were exacerbated on Tuesday with the release of US consumer confidence data showing confidence improved in August, thanks in large part to lower gasoline and diesel prices. This will only encourage the Fed to maintain a path of aggressive interest rate measures to cool the economy, creating more misery for global investors and companies while increasing the cost of financing.
Economic Data
The ADP employment report found that private sector firms employed 132,000 workers in August, down from 268,000 in July. In a statement, the ADP said, “Our data points to a shift toward a more conservative pace of employment, possibly as companies attempt to decipher the conflicting signals of the economy. "We may be at an inflection point, from highly charged job gains to something more normal," ADP chief economist Nella Richardson said in a statement.
The Chicago Purchasing Managers' Index (PMI) rose to 52.2 in August, up from 52.1 the previous month. Mortgage applications fell 3.7% in the week ending August 26, according to the Mortgage Bankers Association (MBA). The 30-year mortgage rate also rose to 5.8% last week. The rest of the week will be crucial to gauge the trajectory of the US economy in the third quarter. The August jobs report and other employment data, manufacturing and construction activities, and factory orders will be reported. But while this would be bullish for financial markets during any other period, investors are concerned about the positive data as it will encourage the Fed to continue its tightening efforts.
Future of Fed Policy
In a recent speech, Cleveland Federal Reserve Chair Loretta Meester indicated that she expects the fed funds rate to rise above 4% and no interest rate cuts until at least 2024. "My current view is that it will be necessary to raise the US interest rate to just over 4 per cent by early next year and keep it at that," she said. And I don't expect the Fed to cut the fed funds rate target next year. It would be a mistake to declare victory over the inflation monster too soon. Doing so would take us back to the stalled world of monetary policy in the 1970s, which was very costly for families and businesses.”
Forecast of the dollar against the Japanese yen:
- The general trend of the USD/JPY currency pair is still bullish.
- The opportunity to move towards the 140.00 psychological resistance is possible.
- If the US jobs numbers this week come in stronger than all expectations, it indicates that the Fed is working well and that the interest rate hike did not lead to a recession in the US economy as previously thought.
On the other hand, according to the performance on the daily chart, the pair's direction may change initially if it moves towards the support levels 136.20 and 134.60, respectively. The USD/JPY pair will be affected by the weekly jobless claims, non-farm productivity and ISM manufacturing index.
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