US Dollar tracks USD/JPY higher after BoJ’s inaction

The US Dollar recovery from multi-month troughs gathers steam early Wednesday, triggering a fresh selling wave across the FX board. The main catalyst behind the resurgent US Dollar demand is the Bank of Japan’s (BoJ) decision to keep the monetary policy settings and yield curve control policy unchanged at its first policy review of this year. The BoJ’s inaction, despite the market pressure to act, triggered a sharp sell-off in the Japanese yen, which shot the USD/JPY pair through the roof. The global bond market breathed a sigh of relief, as the latest BoJ move smashed the 10-year Japanese Government Bond (JGB) yields to near 3.60%, down 13.5 basis points or a massive 27% so far. The US Treasury bond yields also plunged in tandem, checking the further upside in the US Dollar. The USD/JPY pair leaped as high as 131.57 before reversing to near 130.85, still over 2% higher on the day.

Markets remained jittery, following a mixed close on Wall Street, as traders digest lackluster US banking earnings reports. The Japanese benchmark, the Nikkei 225 index, soared 2.50% in reaction to the BoJ smackdown. The US S&P 500 futures are defending minor bids ahead of a fresh batch of US corporate earnings results, Retail Sales and Producer Price Index (PPI) data due later in the day.

AUD/USD and NZD/USD are consolidating gains, awaiting the scheduled meeting between US Treasury Secretary Janet Yellen and China’s Vice-Premier Liu He. Meanwhile, USD/CAD is on the back foot below 1.3400 amid the persistent rise in the WTI price. The US oil is trading close to $81.50, as OPEC’s upbeat outlook on Chinese oil demand underpins.

EUR/USD is looking vulnerable below 1.0800 amid a stronger US Dollar while the Euro continues to feel the pain from the dovish ECB report. Bloomberg reported on Tuesday, citing sources, the European Central Bank (ECB) was considering a slower pace of interest rate hikes, with a prospect of a 25 bps rate hike following the expected 50 bps increase in February. Traders will await the second revision to the Eurozone HCIP data after Tuesday’s strong Germany ZEW survey.

GBP/USD is holding the higher ground near 1.2300 ahead of the all-important UK Consumer Price Index (CPI) data release. Another soft UK CPI print is likely to encourage the Bank of England (BoE) to slow down its tightening pace or bring it to a halt altogether. Cable climbed on Tuesday after the UK labor market report showed a solid pay growth rise in November.

Gold price is keeping its corrective downside intact, although regained the $1,900 threshold in early Europe amid falling US Treasury bond yields. Near-term technical setup points to more declines in the offing.

Bitcoin is holding gains above the $21,000 level, lacking a clear directional bias while Ethereum is challenging the $1,600 barrier amid multiple bearish signals.

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