The Dollar/Yen rebounded to close marginally higher last week after opening sharply lower at the start of the week due to a bearish outlook for the Greenback.
The USD/JPY finished the week at 111.394, up 0.088 or +0.08%.
The week started with the Japanese Yen rallying to a four-month high against the U.S. Dollar as investors weighed the prospects of increased fiscal spending by President Donald Trump after he and House Republicans failed to push through key healthcare legislation the week before.
President Trump’s inability to deliver a major election campaign pledge drove the USD/JPY to 110.110, its lowest level since November 18, or a little more than a week after Trump’s surprising victory.
Aggressive sellers said the Dollar/Yen was under pressure because the inability to pass healthcare reform was a big setback for the Republican president whose own party controls Congress. Furthermore, it raised doubts over whether Trump will be able to deliver his tax reforms and increased fiscal spending.
The USD/JPY reached its low for the week on March 27 after a top U.S. Federal Reserve official reinforced expectations of more U.S. rate hikes in the future while political uncertainties surrounding Britain’s exit from the European Union pressured European currencies.
In an interview with CNBC, Federal Reserve Vice Chairman Stanley Fischer said two more increases of U.S. overnight rates this year seemed “about right”.
Dallas Federal Reserve Bank President Robert Kaplan and Chicago Fed chief Charles Evans also put the emphasis back on the prospect of more increases in U.S. interest rates.
Kaplan, who said he sees inflation and employment approaching the Fed’s goals, continued to advocate a gradual pace of rate increases to avoid shocking the economy. “You don’t want to just slam on the brakes. You want to ease off the accelerator first,” he said. At the same time, “monetary policy does operate with a lag,” so it makes sense to lift rates before inflation hits the Fed’s 2 percent goal.
Evans said two interest-rate increases may be the right amount of tightening for the U.S. economy this year given uncertainty surrounding the outlook for inflation and government spending.
“To the extent that I gain more confidence in the forecast I have, that would be a good indicator that I could perhaps support three,” Evans said on March 27. “Two might be the right number if there’s a little bit more uncertainty.”
USD/JPY traders are likely to continue to monitor the comments from Fed officials this week as well key U.S. reports and their impact on the direction of U.S. interest rates and demand for higher-yielding assets.
These reports include ISM Manufacturing PMI and ISM Non-Manufacturing PMI repots early in the week. On Wednesday, April 5, the Fed will release the minutes from its March 15 meeting.
On Friday, April 7, the U.S. will release its non-Farm Payrolls report. Early estimates predict the economy added 176K jobs in March. Average Hourly Earnings are expected to come in up 0.2% and the unemployment rate is expected to remain at 4.7%.