USD/JPY sets for positive weekly close above 143.00 as US Dollar rebounds
- USD/JPY eyes a positive weekly close as the US Dollar (USD) bounces back.
- The US Dollar recovers as Trump has expressed confidence that he is close to making trade deals with number of trading partners.
- China denies having any trade negotiations with the US.
The USD/JPY pair is expected to conclude the week on a positive note above 143.00. The pair surges to near 143.50 on Friday as the US Dollar (USD) has resumed its recovery move on hopes that United States (US) President Donald Trump is close to make deals with number of his trading partners.
The US Dollar Index (DXY), which tracks the Greenback’s value against its six peers, bounces back to near 99.75 after a corrective move on Thursday.
During North American trading hours, United States (US) President Donald Trump said to reporters before leaving for Rome to for Pope Francis' funeral that “trade deals are going well”, Reuters report. He added that the administration is close to “make deal with Japan”.
Meanwhile, investors have become uncertain over US-China trade relations due to contradictory statements from US President Trump and Beijing. While China has been denying any economic and trade negotiations with the US, Trump has claimed that Chinese President Xi Jinping had called him while interviewing by Time Magazine.
“He’s called,” Trump said and added “I don’t think that’s a sign of weakness on his behalf.”
In late European trading hours, a spokesperson from the Chinese embassy said, “China and the US are not having any consultation or negotiation on tariffs,” Reuters report.
In the Japan region, hotter-than-expected Tokyo Consumer Price Index (CPI) data for April has kept hopes of more interest rate hikes from the Bank of Japan (BoJ) alive. Tokyo CPI excluding Fresh Food, which is closely tracked by BoJ officials rose at a robust pace of 3.4% compared to estimates of 3.2% and the prior release of 2.4%.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.