USD/JPY Nears 160 as Strong Dollar and Haven Demand Rise

Key Moments

USD/JPY trades about 0.22% higher near 159.60 in Monday’s European session, approaching the 160.00 level.
The US Dollar Index (DXY) is up 0.33% around 99.85 as investors seek safety amid heightened Middle East tensions.
Market pricing via the CME FedWatch tool shows a 97.3% probability that the Fed keeps rates at or above 3.50%-3.75% in December.

Safe-Haven Flows Lift USD/JPY

USD/JPY is trading higher by 0.22% around 159.60 in European hours on Monday as renewed demand for safe-haven assets supports the US Dollar (USD). The move comes against a backdrop of escalating conflict in the Middle East, which is feeding risk aversion across markets.

At the time of reporting, the US Dollar Index (DXY) – which measures the Greenback against a basket of six major peers – is up 0.33% and trading near 99.85, underlining broad-based USD strength.

US Dollar Performance Against Major Currencies

The current session shows the US Dollar advancing against a range of major counterparts. On the day, the Greenback is identified as strongest versus the Australian Dollar.

The heat map referenced in the report illustrates percentage changes between major currencies. In this framework, the base currency is taken from the left-hand column and the quote currency from the top row. For instance, selecting the US Dollar as the base on the left and moving horizontally to the Japanese Yen on the top would display the percentage change for the USD/JPY pair.

Geopolitical Tensions in the Middle East

Worsening conditions in the Middle East are contributing to the current safe-haven bid. The article notes that Middle East conflicts have intensified as Iran pledges retaliation against the United States (US) and Israel if its power plants are attacked. Over the weekend, US President Donald Trump warned he would “obliterate” Tehran’s power plants if Iran does not open the Strait of Hormuz.

Fed Policy Expectations Support the Dollar

On the domestic policy front, traders are positioning for a Federal Reserve (Fed) that is unlikely to turn dovish this year. Market-based expectations from the CME FedWatch tool indicate that the probability of the Fed keeping interest rates at or above the current 3.50%-3.75% range at the December meeting stands at 97.3%, sharply higher than the 32.4% probability recorded a week earlier. This repricing underpins the Dollar’s yield advantage and adds to its appeal as a safe-haven asset.

Despite the Japanese Yen (JPY) weakening versus the US Dollar, the JPY is reported to be higher against several other major Asian and European currencies, reflecting its own safe-haven characteristics amid the broader risk-off environment.

USD/JPY Technical Picture

USD/JPY has pushed up toward 159.60 during the session, reinforcing its near-term bullish tone. The pair is trading above the rising 20-day Exponential Moving Average (EMA), currently around 158.10, maintaining the broader uptrend following a recent pullback to 157.70.

The rebound from that corrective low and the quick recovery above the short-term EMA highlight continued demand on modest dips. Momentum indicators are also supportive: the 14-day Relative Strength Index (RSI) is above 60, signaling positive momentum and leaving room for additional upside while trend-following indicators remain constructive.

Level	Price	Comment
Immediate resistance	160.00	Recent peak; a sustained break would confirm further bullish extension
Next upside target	160.50	Projected objective if 160.00 is cleared
First support	158.70	Initial downside buffer
Key support / floor	157.50	Aligns with last notable reaction low; a daily close below would weaken the bullish structure
Deeper retracement area	156.46	March 5 low that may come into view if 157.50 breaks

A daily close under 157.50 would mark a notable deterioration in the prevailing bullish setup and could open the door to a more pronounced correction toward the March 5 low at 156.46.

(The technical analysis of this story was written with the help of an AI tool.)

US Dollar Overview

The US Dollar (USD) is the official currency of the United States of America and serves as the “de facto” currency in a number of other jurisdictions where it circulates alongside local denominations. According to data cited from 2022, it is the most actively traded currency globally, representing more than 88% of worldwide foreign exchange turnover, or an average of $6.6 trillion in transactions per day.

Following the second world war, the USD replaced the British Pound as the dominant global reserve currency. For much of its existence, the Dollar was backed by gold until the Bretton Woods Agreement in 1971 ended the Gold Standard.

Fed Policy and Its Influence on the Dollar

Monetary policy conducted by the Federal Reserve is described as the primary driver of the US Dollar’s valuation. The Fed operates under a dual mandate to secure price stability – interpreted as controlling inflation – and to foster maximum employment. Its main lever for achieving these goals is the adjustment of interest rates.

When inflation climbs above the Fed’s 2% target and prices accelerate excessively, the central bank tends to raise interest rates, a stance that typically supports the Dollar. Conversely, if inflation dips below 2% or unemployment rises too high, the Fed may cut rates, generally putting downward pressure on the Greenback.

Quantitative Easing and the Dollar

In periods of severe financial stress, the Federal Reserve can resort to expanding the money supply and implementing quantitative easing (QE). QE is defined as a policy in which the Fed significantly increases the availability of credit in a stalled financial system.

It is characterized as a non-standard measure deployed when interbank lending seizes up due to fears of counterparty default, and when conventional rate cuts alone are insufficient. QE was used as the main tool to address the credit crunch during the Great Financial Crisis in 2008. The process involves the Fed creating additional Dollars to buy US government bonds, primarily from financial institutions. Such actions usually result in a weaker US Dollar.

Quantitative Tightening and the Dollar

Quantitative tightening (QT) is described as the reverse of QE. Under QT, the Federal Reserve halts bond purchases from financial institutions and allows the principal on its maturing holdings to roll off without reinvestment. This contractionary stance on the balance sheet is generally viewed as supportive for the US Dollar.