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10/09/24
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USD/JPY Pares Gains as Market Sentiment Shifts Amid Economic Indicators
The USD/JPY currency pair has seen a modest upward movement for the second consecutive day, supported by various economic indicators and market sentiments. A recent downward revision to Japan’s GDP has weakened the Japanese Yen (JPY), while a generally positive risk sentiment in global equity markets reduces demand for this safe-haven currency. Additionally, diminished expectations for a significant 50 basis points cut in the Federal Reserve’s interest rate in September has further bolstered the US Dollar (USD).
Currently, USD/JPY is trading with a slight upward bias just below the mid-143.00s, following an early dip near the 142.85 level. Despite this positive movement, the pair has yet to show strong bullish momentum, remaining close to a one-month low reached last Friday.
Recent data revealed that Japan’s economy grew at a slower rate than initially estimated during the second quarter. This development may complicate the Bank of Japan’s (BoJ) plans for future interest rate hikes. Coupled with a positive risk environment in equity markets, the JPY’s safe-haven appeal continues to diminish, creating favorable conditions for further USD buying.
The USD Index, a measure of the Greenback’s performance against a basket of currencies, has reached a multi-day high amidst decreased expectations for a 50 basis points interest rate reduction by the Fed this month. Nevertheless, the markets are anticipating a 25 basis points cut later. In contrast, projections suggest that the BoJ could implement another interest rate hike before the year ends, potentially limiting aggressive bullish positioning in the USD/JPY pair.
As investors await US consumer inflation data slated for release on Wednesday, there may be a tendency to hold back on new directional trades. Confirming a near-term bottom for USD/JPY will require strong follow-through buying, especially in light of the absence of significant US economic data on Tuesday. However, addresses from key FOMC members later in the US session could offer crucial insight and impact market dynamics.
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