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USDJPY Recovers to 135 Yen Level Temporarily
Strong US Employment Statistics Maintaining US Labor Market Strength.
“USDJPY Recovers to 135 Yen Level Temporarily with Strong US Employment Statistics Maintaining US Labor Market Strength”
On NY time, the dollar-yen rapidly rebounded with buybacks, temporarily recovering the 135 yen level. Despite the macroeconomic headwinds, April’s US employment statistics released in the morning showed that the US labor market remains strong, which has strengthened the dollar buybacks. However, at present, the 135 yen level has become a strong resistance level.
Even with strong US employment statistics, expectations of a US interest rate cut in July have retreated slightly, and expectations of a rate hike in June have not increased. According to CME FedWatch, the probability of a hold on rates in June is nearly 100%, while expectations of a rate cut in July have decreased from around 60% the previous day to around 40%.
The market is increasing expectations of a pause in rate hikes after this week’s FOMC meeting and is shifting its focus to rate cuts. Fed Chairman Powell repeatedly expressed a negative view on early rate cuts at the press conference, but today’s US employment statistics seem to justify his views.
Following today’s US employment statistics, the market is also increasing its expectations of the Fed maintaining high interest rates for a long time, but expectations for the downside of the dollar-yen remain strong, and some are beginning to raise the voice of 120 yen by the end of the year.
The euro-dollar continues to trade in the 1.10 dollar range. With strong US employment statistics, the dollar has rebounded, and there have been scenes where it has fallen to the 1.09 dollar range but quickly rebounded. It seems that fund buyers can be observed if it falls below 1.10 dollars. Some in the market also believe that the euro-dollar will continue to range trade between 1.09-1.11 dollars for a while, and recommend buying on dips if it enters the 1.09 dollar range.
At the ECB’s board meeting the previous day, it implemented a rate hike, dropping the normal range by 0.25 percentage points. However, there was no change in the hawkish atmosphere, and ECB President Lagarde was committed to additional rate hikes at the press conference. As a result, expectations for the ECB to continue raising rates are increasing in the market, and some voices are calling for two or three more hikes even as the end of the rate hike cycle is approaching. In addition, a narrowing of the gap in monetary policy between the ECB and the Fed is expected to support the downside of the euro-dollar.
The pound-dollar is accelerating its buying, expanding its rise to the mid-1.26 dollar range. It has risen to the highest level in about a year and a half since May of last year. Despite weak UK economic indicators, the market is seeing progress in Brexit negotiations, leading to the pound’s rise.
Next week, the Bank of England’s Monetary Policy Committee (MPC) is scheduled to meet, and it is expected that an additional 0.25% interest rate hike will be considered given the unexpectedly strong recovery of the UK economy, as indicated by the previous day’s economic indicators. However, there is a possibility that two of the more dovish members may cast dissenting votes, and some analysts suggest that the vote may be 7-2 in favor of the decision.
In particular, the strength of the UK housing market has been highlighted, with the number of approved mortgages reaching a five-month high and consumer borrowing increasing despite rising mortgage rates. Despite the increase in mortgage rates, the number of mortgage applications has increased and there are signs that the decline in house prices may have bottomed out. As a result, the market expects the interest rate hike next week to be certain, with expectations of further rate hikes over the next few months.
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