Forex world

December 14, 2022

USD/JPY struggles near 135.00

- USD/JPY drifts lower for the second straight day and drops to over a one-week low.

- Expectations for a less hawkish Fed weigh on the USD and exert downward pressure.

- Any further losses seem limited ahead of the highly-anticipated FOMC policy decision.

The USD/JPY pair remains under some selling pressure for the second straight day on Wednesday and drops to over a one-week low, around mid-134.00s heading into the North American session.

The US Dollar remains on the defensive and languishes near its lowest level since late June, which, in turn, drags the USD/JPY pair lower. The softer-than-expected US consumer inflation figures released on Tuesday reinforced expectations that the Fed will slow the pace of its policy tightening and continues to weigh on the greenback.

In fact, the US central bank is expected to deliver a relatively smaller 50 bps rate hike at the end of a two-day policy meeting later this Wednesday. This keeps the US Treasury bond yields depressed. The resultant narrowing of the US-Japan rate differential drives some flows towards the Japanese Yen and contributes to the USD/JPY pair's downtick.

Moreover, the cautious market mood ahead of the key central bank event risk benefits the safe-haven JPY and exerts additional downward pressure on the USD/JPY pair. Any further downside, however, is likely to remain limited as traders might prefer to wait for the Fed's near-term policy outlook amid signs of easing inflationary pressures in the US.

Hence, the focus will remain glued to the accompanying monetary policy statement and the so-called dot plot. Investors will look for fresh clues about the future rate-hike path. This, in turn, will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the USD/JPY pair.

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