Key Takeaways
Dollar weakened against the yen ahead of the Fed decision
Fed expected to make its first interest rate cut in over four years
U.S. dollar has fallen in anticipation of rate cuts
Yen has surged more than 12% since July due to Bank of Japan’s rate hikes
Markets unsure of direction before the FOMC meeting
Japanese Yen gains ground against US Dollar due to Fed rate cut expectations- Merchandise trade balance in Japan records a larger trade deficit
- US Dollar under pressure with expectations of 50 basis point rate cut
- USD/JPY trending downward, potential for upward correction
- Immediate support for USD/JPY at 139.58, resistance at 142.14 and 143.72
- Japanese Yen is a safe-haven investment in times of market stress
Bank of Japan’s ultra-loose monetary policy affects Yen value
Japanese Yen value determined by Japanese economy performance and BoJ policy- Widening policy divergence between US and Japan favors US Dollar against Yen
Japanese Yen one of the world’s most traded currencies, influenced by various factors- Concerns over the pandemic impact on the US economy
- Investors shifting towards safe-haven assets like the yen
Market waiting for cues from the upcoming Fed meeting
Australian dollar trades at two-week top at $0.67885
Yen rose 0.45% to 141.78 per dollar on Wednesday
Fed’s tone and rate cut size will affect forex market- Dovish Fed could lead to weaker dollar
- Relief rally for dollar in case of 25 bp cut
- Fed easing mode will be a drag on USD in longer run
- Sterling gains momentum
China’s markets resume trade- European inflation fell to 2.2% in August
- Volatility expected with market betting on 41 bp of cuts
Market Updates
As the Federal Reserve meeting approaches, there is a sense of anticipation and uncertainty in the markets. The U.S. dollar has weakened against the yen in anticipation of the Fed’s decision to potentially make its first interest rate cut in over four years. This anticipation has led to the Japanese Yen gaining ground against the US Dollar, with the yen surging more than 12% since July.
Investors are closely watching for cues from the upcoming Fed meeting, as they try to gauge the Fed’s tone and the size of the rate cut. A dovish Fed could lead to a weaker dollar, while a relief rally may occur if a 25 basis point cut is implemented. However, the continued easing mode by the Fed could be a drag on the USD in the longer run.
Amid concerns over the pandemic’s impact on the US economy, investors are shifting towards safe-haven assets like the yen. The BoJ’s ultra-loose monetary policy also plays a significant role in determining the value of the Japanese Yen. With a widening policy divergence between the US and Japan, the US Dollar is currently favored against the Yen. Market volatility is expected as traders bet on the possibility of a 41 basis point cut.