- USD/JPY climbed from 108.15 to 108.48 which was another fresh high.
- US 10 and 2-year treasury yields flew, supporting the Dollar higher.
USD/JPY climbed from 108.15 to 108.48 which was another fresh high since the 1 August Trump tweet announcing China tariffs. The pair is consolidated in the Tokyo open as the markets digest the Federal Reserve which cut the Fed funds rate by 25bp to a 1.75%-2.00% range, which was expected.
Fed event broken down
However, markets were looking to the statement for clues as to when the Fed will move next. Analysts at Westpac break down the key points:
- “The statement reiterated that the Fed will “act as appropriate to sustain the expansion”, offering no strong guidance about further rate cuts. Economic forecasts were changed only slightly, including 2019 GDP nudged up from 2.1% to 2.2%.”
- The dot-plot revealed five members projected a 2.0-2.25% rate by year-end (i.e. holding steady at this meeting and into 2020), while seven members expected another cut after today, and five members (the median expectation) expected an unchanged rate. Three voting members dissented against the 25bp cut – hawks George and Rosengren wanted an on-hold decision (repeating their July dissents), while dove Bullard wanted a 50bp cut.”
- “The median expectation for the Fed rate in 2020 is for no change, then a hike in 2021 and another in 2022, and in the long run remaining at 2.50%.”
- “Fed Chair Powell, at the press conference, articulated a “wait and see” approach, shying away from characterising the cut as an insurance one, saying the Fed will be flexible in dealing with the numerous uncertainties present.”
- “Markets were disappointed at the lack of dovish guidance but continue to expect a lower Fed funds rate, closer to 1.20% eventually (vs 1.88% now). Indeed Fed funds futures were barely changed into Q1 2020 and only +2bp by mid-2020.”
As a result, US 10 and 2-year treasury yields flew, supporting the Dollar higher. The 2-year rallied from1.67% to 1.77% in response to the Fed, while the 10s jumped from 1.75% to 1.80%. Looking ahead, we have the Bank of Japan which is expected to maintain its basic policy settings at today’s meeting.
USD/JPY levels
Valeria Bednarik, the Chief Analyst at FXStreet explained that the USD/JPY pair was heading into the Asian opening at fresh multi-week highs in the 108.40 region and bullish according to technical readings in the 4 hours chart:
“It’s moving sharply above its 20 SMA, after repeatedly bouncing from the indicator in the last sessions. Technical indicators in the mentioned chart have resumed their advances within positive levels, reaching fresh weekly highs, favoring an upward extension toward August high at 109.31.”
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