USD/JPY hits a ten-week high at 159.65 following a hot October CPI print and hawkish Fed rhetoric, with markets now pricing in aggressive rate hikes for December and January.
The pair jumped 0.54% to around 159.65, a ten-week high, after core US CPI rose 0.3% in October versus a 0.2% forecast and Fed's Waller flagged a possible half-point hike in December. Markets now price 85% odds of a December hike and 60% odds of another in January, keeping the dollar strong. The main counterweight is intervention risk as price approaches 160.
Hot US October inflation (core +0.3%, headline +0.4%, both above forecasts) plus Waller's warning of a possible half-point December hike sharply repriced Fed expectations to 85% odds of a December hike and 60% of a January move, reinforcing dollar appeal. Risk: further hawkish pricing is already partly in the price.
The yen fell to a ten-week low as the dollar surged on hawkish Fed repricing, even though the BoJ's October Summary of Opinions showed growing support for more tightening. Policy divergence favours the dollar, though intervention above 160 and possible BoJ tightening cap the downside.
The USD/JPY pair climbed 0.54% to 159.65, marking a ten-week high as strong US inflation data and hawkish comments from Fed Governor Christopher Waller shifted market expectations. Investors now price in an 85% probability of a December rate hike and a 60% chance of a follow-up increase in January, keeping the dollar buoyant despite potential intervention risks near the 160.00 level.
Stronger-than-expected US inflation data and hawkish comments from Fed Governor Waller pushed traders to price in 85% odds of a Fed rate hike in December, boosting the dollar against the yen past 159.00.
The article highlights possible intervention by Japanese authorities above 160, and ING expects investors to buy the cheap yen if the pair pushes above that level again.
Tuesday's stronger-than-expected US CPI and Fed Governor Waller's warning that a half-point December hike may be needed, which pushed the odds of a December hike to 85% and a January hike to 60%.
The article notes intervention risk above 160 and that a stable 2.00% inflation reading could push the Bank of Japan to tighten policy, which may gradually favour a stronger yen over the medium term.