Forex Market: USD/JPY hits a six-week low as investors expect less aggressive Fed policy tightening

USD/JPY registered a fresh six-week trough on Monday, as market players continued betting on less aggressive policy tightening by the Federal Reserve amid risks of recession.

“U.S. interest rate expectations appear to have peaked (for now) in June,” Jefferies strategists wrote in a research note, cited by Reuters. “On all our measures, the dollar appears over-valued.”

Markets are now pricing about 31% chance of another 75 basis point rate hike at the Fed’s upcoming meeting in September, while there is a 69% chance of a smaller, 50 basis point raise.

Benchmark US 10-year bond yields stood at 2.67%, after falling as low as 2.62% last week – their weakest level since early April.

Last Friday the US Dollar retreated against peers after final University of Michigan data showed a drop in long run consumer inflation expectations.

This week’s key macro data will be the US Non-Farm Payrolls report, scheduled for release on Friday.

Meanwhile, Bank of Japan policy makers view wage raises as key to sustainably achieve the bank’s 2% inflation objective, while ultra-accommodative policy settings are still required, so that the economy could weather the impact from surging commodity prices and COVID-19 lockdown-related supply disruptions.

As of 8:54 GMT on Monday USD/JPY was losing 0.56% to trade at 132.455. During the early phase of today’s Asian session the major Forex pair slipped as low as 132.055, which has been its weakest level since June 16th (131.491).

USD/JPY retreated 1.81% in July, following a 5.48% gain in June.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 133.46
R1 – 134.41
R2 – 135.63
R3 – 136.59
R4 – 137.54

S1 – 132.24
S2 – 131.28
S3 – 130.07
S4 – 128.85