After the recent upward rebound attempts of the USD/JPY currency pair, reaching the resistance level of 142.25, the selling of the US dollar was renewed ahead of the American holiday on a large scale against the rest of the other major currencies. The share of this for the USD/JPY pair was to retreat to the support level 139.20 at the time of writing. The decline came as the Federal Reserve is expected to show how united policymakers were at their meeting this month on a higher peak in interest rates than previously indicated as they calibrate their fight against high inflation for decades.
At the close of the November 1-2 meeting of the US central bank's Federal Open Market Committee, Fed Chairman Jerome Powell told reporters that rates are likely to rise higher than the FOMC's quarterly forecast in September indicated. In his post-meeting news conference, Powell linked the idea of heading for a higher peak for the Fed's benchmark interest rate with a disappointing inflation report released in the weeks after the September forecasts were published. The question of how the FOMC views the relationship between near-term inflation data and the final destination for rates is crucial for investors. Officials will update the projections at their next meeting on December 13-14.
For its part, the US Federal Reserve has carried out an aggressive campaign of monetary tightening this year, which has included increases of three-quarters of a percentage point - three times the usual size - at each of its last four policy meetings. With the benchmark interest rate now just under 4%, Powell suggested in his press conference after the November meeting that the central bank would likely step aside to raise US interest rates lower in December. Even more important for financial markets and the economy is when Fed officials feel good enough about progress on the inflation front to stop raising interest rates altogether.
The Labor Department's November 10 report on US consumer prices indicated that the long-awaited overdraft on inflationary pressures may finally be under way. But the good news from the latest data may not be enough to cancel out the bad news from the previous month that formed the backdrop to Powell's comment about the rate hike. Continued strength in the labor market is another factor the Fed is considering as a possible reason to raise its rate forecasts, according to Mark Giannone, chief US economist at Barclays plc in New York.
He referred to the monthly data on job opportunities that were published before the November meeting, which indicated a decrease in the demand for labor, in contrast to the data that was published after the meeting, which indicated that job opportunities rose again. Investors now expect the Fed to choose to raise interest rates by half a point at the December meeting, bringing the target range for the benchmark to 4.25% to 4.5%, with rates peaking next year around 5%, according to contract prices in futures markets. That compares with the 4.5% to 4.75% peak in the Fed's forecast for September.
Two policymakers — Cleveland Fed President Loretta Mester and her counterpart in San Francisco, Mary Daley — reinforced those expectations in public comments Monday. "I don't think the market's expectations have really stopped," Mester said during an interview on CNBC. And Daly told reporters after an event in Irvine, California that "5%, to me, is a good starting point" for how much higher prices would be needed to restore price stability.
Forecast for the USD/JPY pair today:
- After the recent selling operations, and the USD/JPY currency pair abandoning the psychological resistance 140.00, the bears may find the opportunity to move down.
- The closest support levels for the last performance may be 138.90 and 137.80, respectively.
- The last level is ideal for thinking of buying the dollar yen again.
- The divergence of the policy of both the US and the Japanese Central Bank will support the return of the bullish trend quickly, as happened in the recent sessions.
On the other hand, the vicinity of the resistance level 142.25, which was recorded this week, is important for the bulls to regain control of the trend again.
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