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US economic indicators continue to influence Yen performance 

May 15, 2024

Key Points: 

  • The Japanese yen (JPY) shows weakness against major currencies in response to risk-on sentiment fueled by potential US rate cuts. 
  • Revised March PPI data and strong April figures influence expectations, leading to a 51% likelihood of a Fed rate cut by September. 

The early trading hours saw JPY declining against a basket of G-10 and Asian currencies. This trend was largely driven by an emerging risk-on sentiment, influenced by revised economic forecasts and potential shifts in US monetary policy. The US Producer Price Index (PPI) adjustments for March have significantly shaped the expectations of all market participants. 

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Recent data revealed that the PPI for April exceeded forecasts, but it was the downward revision for March that caught the market’s attention, adjusting the lens through which future monetary policies are viewed. This recalibration has pushed Fed fund futures to now reflect a 51% probability of a rate cut by the Federal Reserve in September. 

Historical pattern of JPY 

JPY typically weakens when US economic data suggests a dovish stance by the Fed and strengthens when the data leans hawkish. A continued perception of a dovish Fed could lead to further weakening of JPY, particularly if other major economies maintain steady or tighten their monetary policies. 

Challenges and opportunities lie ahead for JPY pairs 

For market participants, particularly those trading in JPY currency pairs, the evolving landscape presents both challenges and opportunities. Volatility is expected to remain high, and strategic positioning will be key. Further economic releases from the US and Fed communications should be kept a close watch, as they will provide crucial cues for the movements of the JPY. 

JPY related currency movements include a minor increase of 0.1% in USD/JPY to 156.52, alongside similar upticks in AUD/JPY and EUR/JPY to 103.72 and 169.29, respectively. 

Such a market environment demands a nuanced understanding of the interconnectedness of global financial markets and the specific factors driving the JPY.

Traders are encouraged to include fundamental analysis in adapting their strategies to align with the shifting market conditions as they navigate the complexities of currency trading effectively. 

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