- USD/JPY rallies more than 200 pips from the daily low and is nearing a 24-year high again.
- Stronger-than-expected US CPI report raises expectations for a more aggressive Fed rate hike and boosts the dollar.
- Risk appetite does not benefit the safe haven JPY, nor does it stop the strong intraday move.
The pair USD/JPY has witnessed a dramatic intraday turnaround and has rallied more than 200 pips at the beginning of the American session after the publication of the figures of the inflation of the American consumers. The pair has shot up to the region of 144.65, close to 24-year high hit last week. At time of writing, the pair pulls back to the 144.00 region, up around 0.75% on the day.
The US dollar has made a solid rebound from the new monthly low reached on Tuesday, after Stronger-than-expected US CPI report will raise expectations in favor of more aggressive tightening of the Fed’s monetary policy. This, in turn, is seen as a key factor that helped the USD/JPY pair attract fresh buying near the 142.60-142.55 area on Tuesday.
The markets have begun to appreciate the possibility of a 100 basis point rate hike at the next FOMC meeting on September 20-21 and another 75 basis point hike in November. This is reinforced by the strong rebound in US Treasury yields. In fact, the yield on two-year rate-sensitive US government bonds has soared to the highest level since 2007.
Also, the benchmark 10-year US Treasury bond is once again close to the highs reached in June, which widens the rate differential between the United States and Japan. This, coupled with the wide divergence in monetary policy between the Fed and the Bank of Japan, counteracts risk appetite and fails to provide any support to the Japanese yen or stem the strong intraday rally in the USD/JPY pair.
It will now be interesting to see if the bulls can maintain their dominant position amid speculation that the Japanese authorities could intervene soon to stop the yen’s free fall. Therefore, it is prudent to wait for strength to sustain beyond the psychological level of 145.00 before traders begin to position themselves for a resumption of the recent bull run.
USD/JPY technical levels
Source: Fx Street
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