- USDJPY rebounds from almost two-week low reached this Wednesday.
- High yields on US bonds help revive demand for dollars and remain supportive.
- The divergence between the Fed and the BOJ also acts as a tailwind ahead of Thursday’s US CPI.
The pair USDJPY attracts some buying near the 145.15 area and rebounds from nearly two-week low hit this Wednesday. The intraday rally picks up speed during the early American session and lifts the pair to a fresh daily high, closer to 146.50, amid reviving demand for US dollars.
Despite diminishing odds of a more aggressive Fed policy tightening, markets remain betting on a 50 basis point rate hike in December. This remains supportive of elevated US Treasury yields and helps push the dollar index, which measures the performance of the USD against a basket of currencies, off a multi-week low set. on Tuesday.
The Japanese yen, on the other hand, continues to be weighed down by the fact that the Bank of Japan has so far shown no intention of raising interest rates. In addition, the Bank of Japan remains committed to keeping the yield on 10-year bonds at 0%, which widens the rate differential between the US and Japan. This, in turn, supports the prospects for further appreciation of the USDJPY pair.
That said, speculation that the Japanese authorities might step in again to temper any sharp drop in the domestic currency could put a damper on any significant rise in the pair. Aside from this, a softer risk tone could offer additional support to the safe-haven JPY and help limit gains for the USDJPY pair, at least for now.
Traders also seem reluctant and may prefer to wait for a new catalyst after the latest US consumer inflation figures due out on Thursday. The crucial US CPI report will play a key role in determining the Fed’s rate hike cycles, which, in turn, should determine the short-term path of the dollar and USDJPY.
Meanwhile, traders on Wednesday will be guided by speeches from influential FOMC members amid the absence of market-relevant economic releases. Additionally, US bond yields and overall market risk sentiment should allow traders to take advantage of short-term opportunities around the USDJPY pair.
Technical levels to watch
Source: Fx Street
With 6 years of experience, I bring to the table captivating and informative writing in the world news category. My expertise covers a range of industries, including tourism, technology, forex and stocks. From brief social media posts to in-depth articles, I am dedicated to creating compelling content for various platforms.
