USD/JPY is recovering from a nearly two-month low and is climbing above the 113.00s mid-point
USD/JPY maintained its footing in pre-European trading and last traded near its daily high at 113.60. After overnight volatile price movements, the USD/JPY pair gained some positive dynamics on Wednesday and found support from several factors. Global risk sentiment has stabilized slightly as investors decide to wait and see if the new strain of Omicron corona virus will ultimately hamper the economic recovery. This is evidenced by a good recovery in the stock market, which weakened the safe Japanese yen and acted as a headwind for major currencies.
- The combination of supporting factors continued to help USD/JPY recover from a two-month low.
- A modest recovery in risk sentiment eroded the safe yen and maintained the favor.
- The bulls also sensed a rise in US bond yields, but a devaluation of the US dollar could limit returns
The Bulls also turned to a subsequent rebound in US Treasury yields, helped by restrictive comments from Federal Reserve Chairman Jerome Powell. When testifying in front of the Senate Banking Commission, Powell said it was time to get off the floor and it would be appropriate to consider ending the asset purchase expansion perhaps a few months earlier. He added that the risk of persistently high inflation is increasing and high inflation is expected by next year.
In response to Chairman Powell’s remarks, short-term financial markets have begun evaluating the possibility of a rate hike of at least 50 basis points through the end of 2022. This, in turn, was seen as a key factor in continuing to support US bond yields. Despite interest rate hikes driven by more aggressive Fed tightening, the US dollar has so far struggled to entice meaningful purchases. This could deter traders from displaying aggressive bullishness and limit the continued recovery of the USD/JPY pair from its near two-month low. Market participants are now eagerly awaiting US economic reports including ADP report and ISM manufacturing PMI. A joint speech by FRS Chairman Jerome Powell and US Treasury Secretary Janet Yellen at the House Financial Services Committee is also expected to affect the strength of the dollar. Going forward, traders will consider developments surrounding the coronavirus saga and broader market risk sentiment to capitalize on some of the opportunities associated with the USD/JPY pair.