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Jul 11 - 01:55 PM

USD/JPY - COMMENT-Expected Fed Flip To Easing In 2023 Won't Stop USD/JPY Rise Yet

By Randolph Donney  —  Jul 11 - 12:20 PM

USD/JPY soared 0.9% on Monday as the dollar rallied on risk aversion and could reach resistance in the upper 138.00s if this week's U.S. inflation and retail sales data keep the Fed in frantic rate hiking mode.

USD/JPY struck a 24-year peak of 137.75 on EBS as risk aversion fueled strong demand for safe-haven Treasuries nL1N2YS118, though the U.S. government bond rally weakened Treasury-JGB yields spreads, which could prevent the yield gap from hitting pandemic recovery highs.

Futures now price in a 75bp July hike and fed funds peak near 3.5% by Q1 2023, but also roughly 60bp of easing by the end of 2023.

The faster the Fed raises rates, the sooner it might begin cutting to deal with a recession and waning inflation, perhaps limiting USD/JPY gains medium-term.

In the near-term, however, if U.S. CPI, PPI and retail sales on Wednesday, Thursday and Friday favor more large rate hikes in July and September nL1N2YS0ZU, risk-off flows into the still higher-yielding dollar could see tech targets at 138.62/91 reached.

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Refinitiv IFR Research/Market Commentary


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