The US dollar has outperformed well out of the other major currencies and continues to rise against most of them today as well. The person responsible for the rise in the US dollar was Federal Reserve Chairman Jerome Powell, who said in his testimony before the Senate Banking Committee of the US Congress that the Fed may need to raise US interest rates more than expected and would be ready to move in larger steps if data comes in.
It included stricter measures to curb inflation. The share of the USD/JPY currency pair from those gains was the rebound towards the 137.91 resistance level, the highest for the currency pair during the trading year 2023. It settles around 137.20 at the time of writing.
Other policy makers were already talking about the need for more aggressive action due to the recent stronger than expected economic data. However, Powell's change of heart from highlighting deflationary action to emphasizing the opportunity for bigger steps prompted investors to dramatically increase their bets on the Fed.
Accordingly, the probability of a 50 basis point hike in the next meeting has increased to 70% from 30%, while the level at which they expect interest rates to peak has been raised to 5.65%. Yesterday Powell gave the same testimony before the House Financial Services Committee and a repeat of yesterday's comments could keep the dollar supported.
Having said that, the exponential increase in Fed hike expectations also increases downside risks.
Before the next meeting, investors will have to digest the US employment report and February consumer price index numbers, which are scheduled for release on Friday and Tuesday, respectively. Negative surprises in this data could hurt the dollar.
Forecasts of the US dollar against the Japanese yen today:
- There is no change in my technical view of the performance of the price of the USD/JPY currency pair.
- The general trend is still bullish.
- The bulls may have the opportunity to move the currency pair towards the psychological resistance level of 140.00 if its gains increase to surrounding resistance levels 137.90 and 138.60, respectively.
- Returning to the vicinity of the support level 133.85 will be important for the bears to gain control again.
The currency pair may remain in its bullish path until the US job numbers are announced on Friday.
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