The upcoming week presents a critical moment for the US dollar as investors eagerly await news about the potential 2024 Fed rate cuts amidst fears of a hard economic landing. The FOMC Meeting Minutes on Wednesday, August 21, and speeches from the Jackson Hole Symposium are expected to heavily influence market sentiment. Investors are particularly looking toward Fed Chair Powell’s potential endorsement of a September rate cut on Friday, August 23, as a significant driver for the USD/JPY currency pair.
The Services PMI report scheduled for Thursday, August 22, holds considerable weight in shaping investor sentiment towards the US economy. With economists predicting a decline in the PMI from 55.0 in July to 54.2 in August, concerns about a hard landing may resurface. Given that the services sector accounts for over 70% of the US economy, any sign of weakness in this area could prompt expectations of multiple Fed rate cuts, pushing the USD/JPY lower.
The state of the US labor market poses another crucial factor in determining the future direction of the USD/JPY exchange rate. A slowdown in job creation and softening input prices could reinforce expectations for further rate cuts. Moreover, a significant decrease in employment figures may raise concerns about a hard economic landing, affecting wage growth, disposable income, and consumer spending, which ultimately impacts over 60% of the GDP.
On Thursday, August 22, initial jobless claims data will provide further insights into the health of the US economy and the likely trajectory of the Fed rate path. An anticipated decrease in jobless claims from 227k to 225k could alleviate fears about a hard landing, leading to increased demand for the US dollar. However, the market should closely monitor both the Services PMI and jobless claims figures, as positive results could potentially drive the USD/JPY towards 150, while disappointing numbers may trigger a drop towards 143.
The BoJ’s rate hikes and the subsequent impact on the global economy, combined with the uncertainty surrounding Fed rate cuts and the performance of key economic indicators, are likely to shape the future trading landscape for the US dollar and the USD/JPY exchange rate. Investors must navigate these turbulent waters carefully and remain vigilant in responding to changing market conditions.