The market sentiment surrounding inflation, economic outlook, and interest rate decisions can heavily influence the movement of currency pairs. Recent speeches by key members of the FOMC, including Raphael Bostic, Loretta Mester, and Michelle Bowman, have indicated varying views on the Fed rate path and inflation targeting. While some members advocate for a higher-for-longer rate path to achieve the 2% inflation target, others have warned about potential rate hikes in response to increasing consumer prices.
Changing Expectations of a Fed Rate Cut
Following the release of the April US CPI Report and retail sales figures, investor bets on a September Fed rate cut have increased. However, concerns about the tight US labor market and persistent inflation may sway investor expectations. The CME FedWatch Tool reflects a decline in the likelihood of the Fed keeping interest rates unchanged in September, indicating a shift in market sentiment.
The near-term trends for the USD/JPY currency pair are closely tied to economic data from Japan and central bank commentary. Speculation of a rate hike by the Bank of Japan (BoJ) and hawkish statements from FOMC members could drive demand for the US dollar. The USD/JPY pair has maintained a bullish momentum, remaining above key moving averages and signaling potential price appreciation.
The USD/JPY pair’s current positioning above the 50-day and 200-day exponential moving averages (EMAs) suggests a bullish outlook. A breach above the 156 handle could indicate a move towards 158, with further upside potential towards the April 29 high of 160.209. Alternatively, a break below the 50-day EMA may bring the 151.685 support level into play, signaling a potential shift in momentum.
Traders and investors should keep an eye on key economic indicators and central bank announcements to gauge market sentiment and potential price movements. The Tertiary Industry Index and central bank commentary are among the factors that could influence the USD/JPY pair’s trajectory in the coming days. With the 14-day Relative Strength Index (RSI) hovering around 55.57, there is a possibility of the USD/JPY revisiting the April high before entering overbought territory.