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USD / JPY fluctuates above 133.00, and a decline appears likely as the Fed continues its gradual rate hikes

Daniel Rogers

Mar 14, 2023 14:07

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The USD / JPY currency pair is fluctuating above 133.00 during the Asian session. The asset has recovered from 132.50 but is unable to extend gains due to the lack of strength in the US Dollar Index (DXY) following the Silicon Valley Bank (SVB) debacle. The loss of market participants' confidence in the United States banking system has drastically diminished the appeal of safe-haven assets.

 

Futures for the S&P 500 have recovered a portion of Monday's losses, indicating a slight improvement in market sentiment. The USD Index is attempting to reclaim the immediate resistance level of 103.80, but the upside appears constrained due to expectations that the Federal Reserve will continue its modest rate increase cycle (Fed). The USD Index has been impacted by the market's reduction of 50 basis points (bps) in expected rate increases.

 

In the meantime, the demand for U.S. government bonds is declining, which may indicate a transition away from safe-haven assets. The yield on 10-year US Treasury bonds has risen above 3.56 percent.

 

Tuesday's release of United States Consumer Price Index (CPI) data would be a major market mover. Analysts at Wells Fargo anticipate "another 0.4% monthly increase in the aggregate CPI in February, bringing the annual rate to 6.0%." We still anticipate a decline in inflation, but the process is likely to be irregular and lengthy. Despite some direction improvement over the past few quarters, prices continue to rise well above the Fed's 2% objective, and the constrained labor market suggests that inflationary pressures may prevent a full return to 2%.

 

Hirokazu Matsuno, the chief cabinet secretary of Japan, stated on Monday that they do not anticipate the SVB fallout to have a significant impact on the country's financial institutions. He added, "Japan's financial institutions have adequate liquidity and capital base overall."

 

The minutes of the Bank of Japan's (BoJ) most recent monetary policy meeting, which was conducted by former BoJ Governor Haruhiko Kuroda, will be attentively examined going forward.


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