USD/JPY marches towards 149.00 as hawkish Fed bets soar, PMIs in focus

The USD/JPY pair has rebounded firmly from around 148.60 and is marching towards the round-level resistance of 149.00 as investors are pouring their funds into safe-haven assets to dodge volatility. The asset has refreshed its day’s high at 148.80 and is expected to continue acceleration amid an overall negative trend in market sentiment.

S&P500 witnessed a steep fall on Monday as investors sensed panic attacks amid anxiety ahead of monetary policy by the Federal Reserve (Fed). The US dollar index (DXY) displayed a vertical rally toward a high of 111.50.

The extent of the rate hike by the Fed is crucial as the central bank has to tap policy tightening measures to combat mounting inflationary pressures. A report from Goldman Sachs cites that the US central bank could go beyond its desired terminal rate of 4.75% to 5%. The road to a 5% terminal rate will go through the phases of 75 basis points (bps) this week, 50 bps in December, and 25 bps in February and March, the report added.

Also, the chances for a fourth consecutive 75 bps rate have soared to 89.2%, as per the CME FedWatch tool. This has also supported US government bonds return to rebound to near 4.06%

Apart from that, US ISM Manufacturing PMI will remain in the spotlight. The economic data is seen lower at 50.0 vs. the prior release of 50.9. Also, the ISM New Orders Index will be the crucial catalyst that displays forward demand and is seen significantly higher at 49.1 against the former figure of 47.1.

On the Tokyo front, upbeat Retail Sales data has failed to strengthen yen against the greenback. The monthly and annual Retail Trade have accelerated to 1.1% and 4.5% vs. the projections of 0.6% and 4.1% respectively. The Larger Retail Sales have soared to 4.1% against the estimates of 3.6%.