- USD inched up on an upbeat stock market.
- All focus is now on Powell’s testimony on Tuesday.
USD/JPY is now trading around 107.00, edging up by 0.20% in the New York session and well off the earlier Asian session low of 106.36 amid “risk-on” trade as US stocks are in upbeat mood on a fall in bond yields. The benchmark 10Y US bond yield is now hovering around 2.853%, down by 0.62% and way below the panic high of around 2.96% reached last week. A lower bond yield is good for the overall economy and equities, as it means lower borrowing costs.
On Friday, both US bond yields and the USD came under pressure on the reduced worries of inflation after US treasury secretary Mnuchin downplayed concerns of heating US inflation pressure despite wages´ growth.
Also, in its semiannual monetary-policy report, the Fed signaled that it saw a broad improvement in the US economy and pointed to a pickup in inflation toward the end of last year, but didn’t suggest that a rise in prices warrants a more aggressive policy action. Indeed, the Fed stuck to its forecast for inflation to hover at or below its 2% target in 2018. The 12-month rate of inflation based on the Fed’s preferred PCE index stood at 1.7% in December’17.
Earlier on Monday Asian session, the USD lost some strength after BOJ´s Governor Kuroda said Japanese prices are rising. He also reaffirmed his view that the BOJ needs to continue with the current powerful monetary easing program to achieve its 2% inflation target.
But on Monday US session, the USD got some boost on some optimistic comments by Fed’s Bullard, a well-known dove. Bullard said that the US economy is looking very good and he is not concerned by stress levels following market´s sell-off. The promise of tax reform may boost up private investment. But he is little concerned that Fed may hike too fast although he is now more optimistic about US inflation prospects as a rise in 10-year bond yield is partially driven by a rise in inflation expectations among investors.
The comments about US inflation expectations by Bullard may have boosted the USD as it was not expected from a super dove like him.
On the US economic data front, new home sales figure for January came subdued, negative for the USD to some extent. But Dallas Fed Mfg Business Index for February came as a blockbuster and may have also helped the USD.
Looking ahead, the market will focus on Powell’s’s testimony and comments especially on recent US stock market turmoil on higher US bond yields, eyeing the 3% level, US wages´ growth and inflation mystery and any further clarity on Fed’s projections of 3 rate hikes or more this year.
Overall, as the new Fed chair Powell is seen as a candidate of Yellen´s continuity and also a Trump favorite, Powell may try to peruse a weaker dollar strategy, lower US bond yields and a healthy stock market to make “America great again” in line with his political boss, Trump.
Technically, USDJPY has now to sustain above the 107.25-107.75 zone for a further rally toward 108.05-108.30 and further sustaining above 108.30, it may race towards 108.75-109.20 zone; otherwise, USDJPY may again fall toward 106.00-105.40 and the 105.05-104.40 zone in the coming days.