- USD/JPY rises on Wednesday and hits a new weekly high amid a modest USD rally.
- Expectations for lower Fed rate hikes and falling US bond yields could limit the pair’s gains.
- Investors may refrain from taking aggressive positions ahead of the US CPI report on Thursday.
The pair USD/JPY has gained some positive traction on Wednesday and has risen close to 133.00, to a new weekly maximum, at the beginning of the American session. Nevertheless, rally lacks bullish conviction and risks fading fast.
The dollar attracts some buying and moves away from the 7-month lows reached on Tuesday, which in turn lends some support to the USD/JPY pair. Apart of this, A generally positive tone around stock markets weighs on the safe-haven Japanese yen and provides a modest boost to torque. Having said that, growing acceptance that the Fed will soften its hawkish stance could deter bulls from taking aggressive positions and limit any significant rise in the pair, at least for now.
The mixed report on employment released on Friday in the United States showed a slowdown in wage growth and noted signs of easing inflationary pressures. In addition, business activity in the US services sector reached its worst level since 2009, suggesting that the effect of the Fed’s big rate hikes in 2022 is being felt in the economy. This, in turn, raised expectations for lower Fed rate hikes going forward, which keeps US Treasury yields under pressure near multi-week lows and should act as a headwind for the dollar.
Secondly, Speculation that the Bank of Japan will phase out its ultra-easy monetary policy could help cap the USD/JPY pair. Traders may also refrain from taking directional positions, preferring to stay on the sidelines ahead of the release of US consumer inflation numbers on Thursday. The US CPI will influence the Fed’s outlook, which in turn will boost the dollar and give the pair further directional momentum.
Meanwhile, US bond yields, US price dynamics and broader market risk sentiment could lead to some short-term opportunities around the USD/JPY pair. However, the aforementioned fundamental background warrants some caution on the part of bulls before positioning for any further move higher in the absence of relevant US economic data releases on Wednesday.
Technical levels to watch
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
