- During the early hours on Monday, the US dollar has rallied rather significantly against the Japanese yen, breaking above the 154 yen level.
- That being said, we are a little bit stretched at this point, and we do have the Bank of Japan and the Federal Reserve both with interest rate decisions this week.
- Now, while both of those are known quantities as far as what they are going to do the real question will be what's in the statement and the press conferences.
I do believe longer term that the US dollar continues to rally against the Japanese yen. But let's be honest here, it would not be a real stretch to see people taking profit heading into the central bank announcement, especially into the Federal Reserve one, because while Jerome Powell is expected to announce a 25 basis point rate cut. The reality is we don't really know what he's going to say in the press conference or what the FOMC says in the statement. As things stand right now, there is an 80% chance priced into the market that the Federal Reserve will remain steady with rates into January. And that will continue to make this a positive swap situation.
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People Will Still Want the USD
Because of this, people will prefer to hold dollars. That doesn't mean we have to go straight up in the air, and we have rallied about 450 pips in fairly short order. So, I look at a pullback as a good thing. It gives you an opportunity of buying cheaper US dollars. But I do think eventually we are going to try to break out above the 156.75 yen level to go look into the all-time high again. I don't know if we have a huge shot higher. I just think it's what happens given enough time. Ultimately, I think this is a move that still has some time to go, unless the FOMC shocks everyone.
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