In the face of persistent USD selling, USDJPY finds it difficult to hold onto its intraday rebound gains. The dollar suffers from bets on less aggressive Fed rate rises and falling US bond rates. The tendency to take risks might weaken the safe-haven JPY and boost the pair. Additionally, a more dovish BoJ would discourage bears from making new bets on USDJPY.
On Friday, the USDJPY picks up some steam and somewhat rebounds from the previous day’s milder US CPI-driven decline to the 140.20 level or a two-month low. However, the intraday rise starts to stall at the mid-142.00s. During the first half of the European trading day, the pair gives up a significant portion of its intraday gains and drops below the 141.00 level.
During the first part of the European session, the US Dollar (USD) plunges to its lowest level since August 18, and this turns out to be a significant element acting as a headwind for the USDJPY pair. The worst post-pandemic price increase seems to have passed, according to the most recent US consumer inflation numbers published on Thursday. This reinforces the belief that the Federal Reserve will decrease the rate of its policy tightening in the coming months, putting further pressure on the dollar.
The current market price indicates a likelihood of over 80% for a 50 basis point Fed rate increase in December, up from a probability of 56.8% before the US CPI data. The US Treasury bond yields continued to plummet, which is evidence that estimates for peak US interest rates also fell below 5%. The Japanese Yen receives some support due to the decreasing US-Japan rate difference, which also plays a role in the USDJPY pair’s intraday retracement of more than 170 pip.
That so, traders may be discouraged from initiating aggressive bullish wagers on the safe-haven JPY because of the general risk-on attitude, as shown by a robust rebound in the equities markets. In addition, the Bank of Japan’s adoption of a more dovish attitude may assist in reducing the negative pressure on the USDJPY pair. However, spot prices are still expected to post declines for the fourth week. The Preliminary Michigan US Consumer Sentiment Index is the source of traders’ motivation.