USD/JPY nears seven-week high around 149.00 in countdown to FOMC minutes

Vaseline6 days ago

0 3 minutes read

USD/JPY nears seven-week high around 149.00 in countdown to FOMC minutes

USD/JPY clings to gains near 149.00 with FOMC minutes on horizon.
US core CPI is expected to have risen at a steady 3.2% pace in September.
The Japanese yen will be influenced by the PPI data for September.

USD/JPY remains firm near a seven-week high around 149.00 in the North American session on Wednesday. The asset is showing strength ahead of the Federal Open Market Committee (FOMC) minutes for the September meeting, which will be published at 18:00 GMT.

At the policy meeting, the Fed cut its key lending rates by 50 basis points (bps) to 4.75%-5.00%. It was the Fed’s first dovish decision in more than two and a half years as officials worried about deteriorating labor demand with growing confidence that inflation would sustainably return to the bank’s 2% target .

Meanwhile, the US dollar (USD) is performing strongly as market participants do not expect the Fed to cut interest rates again by 50 bps in November. The US Dollar Index (DXY), which measures the greenback against six major currencies, posted a new seven-week high near 102.80.

Investors will pay close attention to the FOMC minutes to get the views of all officials on the likely interest rate action in the final quarter of the year. According to the CME FedWatch tool, traders pegged two 25bps rate cuts in each of the other two meetings this year.

Going forward, the major trigger for the US dollar will be US consumer price index (CPI) data for September, which will be released on Thursday. Core CPI – which excludes volatile food and energy prices – is estimated to have risen steadily by 3.2%.

On the Tokyo front, investors will focus on Japan’s September producer price index (PPI) data due on Thursday. Factory-gate prices of goods and services are expected to have risen at a slower pace of 2.3 percent from 2.5 percent in August. Signs that producer inflation remains persistent would drive expectations of more Bank of Japan (BoJ) hikes.

Fed FAQ

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to ensure price stability and to promote full employment. Its main tool for achieving these objectives is the adjustment of interest rates. When prices rise too quickly and inflation is above the Fed’s 2 percent target, it raises interest rates, raising borrowing costs throughout the economy. This results in a stronger US dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates to encourage borrowing, which hurts the greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. Twelve Fed officials attend the FOMC—the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve rotating one-year terms. .

In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy higher quality bonds from financial institutions. QE usually weakens the US dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of bonds it holds at maturity to buy new bonds. It is usually positive for the value of the US dollar.

Vaseline6 days ago

0 3 minutes read

Fed FAQ

Vaseline

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