- The US Federal Reserve slowed its efforts to rein in inflation, saying more US interest rate hikes were on the cards as officials debated when to end the most tightening of credit in four decades.
- Those signals were enough to push the USD/JPY currency pair towards stronger support levels up to the level of 128.52.
- Since the beginning of the week’s trading the currency pair has been stable around the resistance level of 130.55.
US Federal Reserve Chairman Jerome Powell and his fellow policymakers raised the Federal Reserve’s benchmark interest rate target by a quarter of a percentage point to a range of 4.5 percent to 4.75 percent. The smaller move came after a half-point increase in December and four huge 75-basis point gains before that. The decision came unanimously by the Federal Open Market Committee (FOMC) in line with financial market expectations.
According to the bank’s policy statement, “the committee expects that the continuous increases in the target range will be appropriate in order to reach a position of monetary policy that is restrictive enough to return inflation to 2 percent over time” and the bank repeated the language it used in previous communications. Indicating that the end of the tightening cycle may be imminent, the committee said that the “extent of future increases” in prices will depend on a number of factors including the cumulative tightening of monetary policy. It has previously linked the “pace” of future increases to those factors.
In another twist from its latest statement, the US Federal Reserve indicated that inflation “has moderated somewhat but remains elevated”, suggesting that policymakers will be increasingly confident that price pressures have peaked. This is compared to the previous language where officials simply stated that price growth was “high”.
Some Fed officials seemed more optimistic last month that they could achieve a soft landing for the world’s largest economy, bringing down inflation without pushing the United States into recession. White House and International Monetary Fund officials also expressed more optimism. Although most private sector economists don’t think the Fed will go through without pushing the US into deflation. Economists polled by Bloomberg last January estimated the probability of a contraction during the next year at 65 percent.
After initially dismissing the rate hike as temporary, Fed policymakers have been scrambling to rein in runaway inflation before it becomes an integral part of the economy, raising rates sharply from near-zero levels as recently as a year ago. They are also shrinking the Federal Reserve’s balance sheet at a record rate, withdrawing hundreds of billions of dollars from the financial system.
Expectations of the US dollar against the Japanese yen:
The downward trend of the USD/JPY currency pair will increase in strength and at the same time Forex currency investors will investigate this downward momentum to grab buy deals for the currency pair. I see that the closest ones are currently 128.10 and 127.20 respectively. The direction of the technical indicators is still pointing down. On the other hand, according to the performance on the daily chart below, the return of stability above the 130.60 resistance will be important for the bulls to start controlling. The US dollar will be strongly affected by the announcement of the US jobs figures tomorrow, Friday. Today the interaction with the announcement of the American Federal Reserve Bank will continue to raise less for the US interest.
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