- The US dollar hit a peak not seen in more than two months against several major currencies on Tuesday, driven by growing speculation that the Federal Reserve will soon implement moderate US interest rate cuts.
- Meanwhile, the Japanese yen approached the critical 150 threshold against the US dollar.
- In early Asian trading, the euro remained steady but remained close to its lowest level since August 8, which it reached on Monday.
- This comes ahead of the European Central Bank’s policy meeting scheduled for Thursday, where expectations are leaning towards another rate cut. Recent US economic indicators point to resilience, with a modest slowdown observed.
In addition, September inflation slightly beat expectations, prompting traders to scale back their expectations for a significant rate cut by the Federal Reserve. Recently, the US Fed began its easing cycle with an aggressive 50 basis point cut at its September meeting. Markets are currently pricing in an 89% chance of a 25-basis point rate cut in November, with a total of 45 basis points of easing expected for the rest of the year.
According to forex trading, the US dollar index, which measures the greenback against six other currencies, was last at 103.18, just below Monday’s peak of 103.36 – its highest since August 8. The index has risen 2.5% and looks poised to end a three-month slide.
The boost for the US dollar came after comments from Federal Reserve Governor Christopher Waller on Monday, who urged a cautious approach to future interest rate cuts, citing recent economic data. Waller stated, "Whatever happens in the near term, my baseline is still for a gradual reduction in the federal funds rate over the next year." Waller also noted that recent hurricanes and the Boeing strike could complicate job market data, potentially reducing October's monthly job gains by more than 100,000 jobs. Moreover, the next non-farm payrolls report is scheduled for early November.
Commenting on this, Chris Weston, head of research at Pepperstone, said: "Most people were aware that the recent disruptions would mess up the US non-farm payrolls print, but Waller's comment goes a long way in defining the type of disruption we can expect. Basically, with the next non-farm payrolls data distorted, markets won't have the same level of pricing risk control going into the November FOMC meeting."
Overall, the recent rise in the US dollar has been negative for the Japanese yen, especially after the dovish turn from Bank of Japan Governor Kazuo Ueda and the unexpected resistance to further interest rate hikes from new Prime Minister Shigeru Ishiba. Also, these developments have raised questions about the timing of future policy tightening by the BOJ.
In early trade, the yen was at 149.55 yen per dollar, after hitting a two-and-a-half-month high of 149.98 yen on Monday, a day when Japan was closed for a holiday. Furthermore, the yen last touched 150 yen on Aug. 1. Meanwhile, China’s offshore yuan was little changed at 7.0935 dollars, after a report by Caixin Global suggested China could issue an additional 6 trillion yuan (about $850 billion) in treasury bonds over the next three years to stimulate its slowing economy.
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USD/JPY Technical analysis and Expectations Today:
Today, the upward shift in the USD/JPY price is still ongoing and breaking the psychological resistance 150.00 confirms the bulls' strong control over the trend. After that, the technical indicators will move towards strong overbought levels if the bulls succeed in moving strongly towards the resistance levels 150.85 and 151.60 respectively. Technically, the trend will remain upward until the support 146.50 is successfully broken.
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