USD/JPY slumps to near 151.00 as US Dollar underperforms on Fed dovish bets
- USD/JPY falls sharply to near 151.00 due to underperformance from the US Dollar across the board.
- Fed officials, including Chair Powell, warn of increasing labor market risks.
- Political parties in Japan deny scheduling voting for the next Prime Minister on October 21.
The USD/JPY pair is down 0.45% to near 151.00 during the European trading session on Wednesday. The pair faces selling pressure as the US Dollar (USD) underperforms its peers, with traders remaining confident of two more interest rate cuts by the Federal Reserve (Fed) this year.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.20% | -0.19% | -0.26% | -0.01% | -0.48% | 0.02% | -0.15% | |
| EUR | 0.20% | 0.06% | -0.07% | 0.16% | -0.25% | 0.16% | 0.06% | |
| GBP | 0.19% | -0.06% | -0.14% | 0.14% | -0.31% | 0.10% | 0.04% | |
| JPY | 0.26% | 0.07% | 0.14% | 0.23% | -0.21% | 0.13% | 0.21% | |
| CAD | 0.01% | -0.16% | -0.14% | -0.23% | -0.47% | -0.04% | -0.10% | |
| AUD | 0.48% | 0.25% | 0.31% | 0.21% | 0.47% | 0.41% | 0.35% | |
| NZD | -0.02% | -0.16% | -0.10% | -0.13% | 0.04% | -0.41% | -0.05% | |
| CHF | 0.15% | -0.06% | -0.04% | -0.21% | 0.10% | -0.35% | 0.05% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.35 lower to near 98.70.
In September, the Fed delivered its first interest rate cut of the year, reducing borrowing rates by 25 basis points (bps) to 4.00%-4.25%, citing labor market risks. Meanwhile, traders are confident that the Fed will lower interest rates further by 50 bps in the remaining year, according to the CME FedWatch tool.
Federal Open Market Committee (FOMC) members, including Chair Jerome Powell, have warned that labor market conditions continue to remain sluggish, which favors the need for further monetary policy easing.
On Tuesday, Fed’s Powell stated that “downside risks to the US job market have risen”, but didn’t comment on further monetary expansion. However, Fed Governor Michelle Bowman and Boston President Susan Collins explicitly supported more interest rate cuts.
Meanwhile, the Japanese Yen (JPY) trades higher against its peers, with investors remaining uncertain over the outlook of Japan’s political structure. The vote for the selection of a new Japanese Prime Minister is unlikely to be scheduled on October 21 as leaders disagreed amid ongoing discussions among parties, Kyodo reported.
An abrupt breakup of Japan’s Liberal Democratic Party (LDP) last week left its leader Sanae Takaichi to rely on support from other opposition parties.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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