- USD/JPY has refreshed its day’s high at 133.70 on the continuation of the ultra-dovish policy.
- According to economists at ING, the Fed will bank upon rate cut context before the 2023 conclusion.
- Fed’s hawkish monetary policy has resulted in a decline in overall economic activities in the US.
The USD/JPY pair has delivered an upside break after displaying topsy-turvy moves around 133.50 in the Asian session. The expectations of the continuation of an ultra-loose monetary policy by the Bank of Japan (BOJ) have triggered volatility for the Japanese Yen.
The USD Index has continued its sideways performance around 103.80 despite volatility in the risk-sensitive assets. S&P500 faced selling pressure on Tuesday led by weakness in the technology stocks. Also, a decline in economic activities as shown by Trade Balance data reported by the United States Census Bureau added uncertainty in the US equities.
The US international rate deficit dropped by $15.5 billion to $83.3 billion in November from $98.8 billion recorded in October. The decline in the trade deficit is not the outcome of a proportional rise in exports but is backed by a decline in overall economic activities. The US economy has started facing the consequences of higher interest rates by the Federal Reserve (Fed) to tame the roaring inflation.
Meanwhile, the decline in the US Durable Goods Orders and households consumption expenditure has started raising red flags for the longevity of hawkish monetary policy by the Fed. Economists at ING are of the view that the recession will accelerate inflation's slide and will allow the Fed to respond with rate cuts before CY2023 is out.
On the Japan front, Reuters conveyed the Bank of Japan (BOJ) Summary of Opinions for the latest monetary policy meeting highlighting that the central bank must maintain the easy policy as Japan is in a critical phase of hitting the price goal. Also, the economy is showing signs of wage rises, a positive economic cycle but appropriate to maintain an easy policy for time being.
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