Yen Resumes Its Downward Trend, Will It Recover Soon?

The US dollar rose in early European trading on Thursday as buyers readjusted their positions ahead of next week’s Fed meeting. The yen also struggled to maintain the uptrend of the previous session.

The Dollar Index compares the dollar’s value against six other currencies. It rose 0.2% to 109.593 at 02:50 ET (06:50 GMT), not far from its two-decade high of 110.79. The focus has shifted to the Fed meeting next week. Traders are preparing for the American Central Bank to step up its efforts to fight inflation after Tuesday’s explosive consumer price report.

According to analysts at ING, this time in the global macro-financial cycle brings back memories of the early 1980s when Paul Volcker was in charge of the Fed. Volcker raised policy rates to 15% to stifle inflation and was willing to tolerate a recession as a side effect.

What Do Experts Anticipate?

No one in the market believes that the Fed funds policy rate will rise over 10% soon. Still, the terminal Fed policy rate rose from 4.00% to 4.30% due to the inflation report. Following a 1% decline in the previous session on news that the Bank of Japan has verified currency rates with banks, USD/JPY increased 0.4% to 143.64. According to ING, the BoJ FX intervention desk would request direct quotes from dealers before intervention during the 1990s period of serial Japanese FX intervention.

The BoJ should not hike interest rates this year. Statistics released on Wednesday revealed a record-high Japanese trade imbalance for August. As a result, currency selling has resumed. In other news, the EUR/USD fell 0.2% to 0.9960. It traded below parity despite the record 75 bps boosts by the ECB last week.

The region is facing an energy crisis that shows no signs of abating. The bloc’s administration’s proposal on Wednesday to pay power companies a windfall to protect consumers from rising energy costs will not address the immediate supply problem.