New Daily Low Nears 129.90

The USD/JPY currency pair saw a measure of sales in the course of the early European session on Wednesday. The pair fell to a new daily low close to the 129.90 level in about an hour before putting this piece together. 

After a short period of consolidation in the initial session of trading activities on Wednesday, the pair of the US Dollar and the Japanese Yen encountered a new set of supply and pulled back under 130.00. the current slide in retracement seen in the Treasury yields of the US is weighing on the US Dollar.

The new supply that caused a pullback, as well as the yield retracement, both put pressure on the price of the spot. The negative effect, nevertheless, looks trimmed because of the widely positive tone in the stock markets. Good as this is, it undermines the Japanese Yen as a safe-haven commodity.

Policy Divergence Should Hold Bears Off

In addition to that, the policy divergence between the US Federal Reserve and the Bank of Japan should stop bears from staking aggressive wagers on the USD/JPY currency pair for now. The Bank of Japan promises to hold on to its loose monetary policy. It also promised to buy an unlimited volume of bonds to hold its zero targets ten-year yield in place. 

The US Federal Reserve, on the other hand, is generally expected to further tighten the country’s monetary policy at a more rapid rate. This is said to be necessary in order to fight the escalating inflation rates. The markets have consequently been pricing in up to 200 basis points interest rates increase to come at different points for the rest of the year.

There are also increasing worries that the COVID crisis in China and the continuous war in Ukraine might cause a clot in the global supply chain and further increase the price of consumer goods. Therefore, the focus of the market will be fixed on the coming consumer price index data from the United States. The data is scheduled to be published in the course of the North American session.

While the major data is expected, bond yields in the United States will keep playing a significant role to influence the dynamics around the US Dollar. Furthermore, traders are expected to take some observations from the general market’s sentiment to seize some near-term trading opportunities close to the USD/JPY currency pair.