- The dollar takes a breather after hitting fresh five-year highs at 114.70.
- Increased risk appetite and a pause in the rally in US yields are weighing on the US dollar.
- USD/JPY remains positive and could reach 117.80/118.60 – SocGen.
USD has declined after touching new five-year highs at 114.70 pm on Wednesday to consolidate in the lower range of 114.00. USD/JPY has turned negative on the daily charts, although the short-term trend remains positive, having risen nearly 5% over the past four weeks.
USD loses strength on increased risk appetite.
With the US dollar weighing down market sentiment, the yen is benefitting from a weaker dollar on Wednesday. For the second day in a row, Wall Street indices are trading with moderate gains as the Dow Jones is up 0.49%. The S&P 500 is up 0.39%, and the tech-heavy Nasdaq is up 0.66%.
As a result of investors’ optimism and a pause in the rally in U.S. bond yields, the dollar has lost some of its strength, allowing most major companies to post modest gains. Dollar index slips about 1% to 94.50. A one-year high reached last week, as investor expectations of monetary tightening have faded somewhat as other major central banks begin to anticipate accelerating their monetary operations normalization plans to curb inflationary pressures.
The Japanese yen, on the other hand, remains heavy due to an adverse monetary policy differential. Fed signals about tapering QE have widened the gap between Treasury yields in the U.S. and Japan. Especially whose central bank keeps the 10-year note near zero through a yield control curve. And additionally have reduced the yen’s attractiveness to investors.
USD/JPY: Still heading towards 117.80/118.60 – SocGen
“Pullback signals are not yet evident; 110.80 should dampen (…) Next potential targets are at 115.50 and the 2016 high of 117.80 / 118.60 “, states Société Générale’s FX analysis team.