JPY continues its vulnerability to external factors, as it continues to weaken against the US Dollar, as seen since last week. Using the DXY index – a US Dollar index weighed against EUR, JPY, GBP, CAD, SEK, and CHF – as a case study, we can better see the broader strengthening of the USD.
EUR (57.6%), CAD (9.1%), GBP (11.9%), SEK (4.2%), JPY (13.6%), and CHF (3.6%).
The correlation becomes even more apparent if we examine the USD/JPY currency pair against the DXY index and the 10-year Treasury note yield.
Nonetheless, the upcoming annual Jackson Hole symposium could set the stage for an opportunity with a keynote address from Federal Reserve Chair Jerome Powell on Friday.
Previous gatherings of central bankers in the ski resort have occasionally revealed significant policy shifts. This time last year, the Fed labeled accelerating inflation as transitory. This year, the alarm bells are ringing on eye-watering high inflation becoming entrenched.
The language will be closely watched for clues on how determined the central bank will get inflation back toward its goal of around 2%.
Overnight, Federal Reserve Bank of Minneapolis President Neel Kashkari renewed his hawkish credentials, referring to his concern about unanchoring inflation expectations.
This led to speculation of a 100 basis-point (bp) hike at their September Federal Open Market Committee (FOMC) meeting. Market pricing is swaying between a 50- or 75-bp rise in the target rate.
The consensus appears that Fed Chair Powell will be more moderate in his language. A deviation from this rhetoric could see Treasury yields move significantly, potentially outsized USD/JPY moves.
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