- The strong US jobs data at the end of last week increased the momentum and strength of the US dollar against the rest of the other major currencies.
- The USD/JPY currency pair moved towards the resistance level of 145.80, its highest in 24 years, the same level as Japan intervened in the markets to prevent further collapse for the Japanese currency.
- The strong US jobs numbers are likely to keep the Fed on pace to continue raising US interest rates aggressively to combat persistently high inflation.
Official figures showed that US employment fell from 315,000 in August to the weakest monthly gain since April 2021. The unemployment rate in the country fell from 3.7% to 3.5%, matching its lowest level in half a century. Overall, the Fed hopes that the slowing pace of hiring will eventually reduce pressure on employers to raise salaries and pass on those costs to their customers through price increases - a recipe for higher inflation. But job growth in September was likely to be too strong to satisfy the US central bank's inflation warriors.
Battle to Rein in Inflation
The Fed has raised its benchmark interest rate five times this year. They aim to slow economic growth enough to reduce annual price increases to a target of 2%. She has a long way to go. In August, one of the key measures of year-over-year inflation, the Consumer Price Index, was 8.3%. Currently, consumer spending - the main driver of the US economy - is showing resilience. In August, consumers spent a bit more than in July, a sign that the US economy was holding up despite higher borrowing rates, violent stock market swings, and inflated food prices, rents and other necessities.
For his part, US Federal Reserve Chairman Jerome Powell has explicitly warned that fighting inflation will "bring some pain", particularly in the form of layoffs and high unemployment. And some economists still hope that despite persistent inflation pressures, the Fed will still be able to achieve a so-called soft landing: slowing growth enough to tame inflation, without going so far as to drive the economy into recession.
In general, it is a very difficult task. The Federal Reserve is trying to achieve this at a perilous time. The global economy, weakened by food shortages and high energy prices caused by Russia's war against Ukraine, may be on the brink of deflation. In this regard, Kristalina Georgieva, Managing Director of the International Monetary Fund, warned Thursday that the International Monetary Fund is reducing its estimate of global economic growth by $4 trillion through 2026 and that “things are likely to get worse before they get better.”
The drop in the US unemployment rate last month was widely spread across demographic groups. Hispanic unemployment has fallen to 3.8%, the lowest level in government records dating back to 1973. Unemployment for black Americans has also fallen, from 6% in August to 5.8% in September, still above a record low. It stood at 5.1% in November 2019. Many Americans seem to have decided that there are still plenty of jobs available and that they can take their time accepting one.
Forecast of the US dollar against the Japanese yen today:
I expect bullish stability for the USD/JPY currency pair until the announcement of US inflation figures and the reaction from the content of the minutes of the last meeting of the US Federal Reserve. There is no doubt that the recent move of the pair moved the technical indicators towards overbought levels. Unless Japan hints that it will intervene again in the markets, the dollar-yen pair may head towards stronger ascending levels, and the closest to it is currently 146.20 and 147.30, respectively.
On the other hand, according to the performance on the daily chart, it will be important to break the 142.00 support, as the pair's current bullish direction is approaching.
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