The USD/JPY currency pair is poised to regain its previous week’s high of 145.00 during the early London session. Despite the correction witnessed in the US Dollar Index (DXY), the pair continues to display overall strength. The Asian session saw the USD Index surrender a significant portion of its earlier gains, as investors exercise caution ahead of the release of United States Manufacturing PMI data.

Market sentiment indicates a decline in risk appetite, with S&P500 futures surrendering their previous gains and turning negative. This cautious approach among investors stems from concerns about the upcoming quarterly results season. Banking and technology stocks may face pressure due to tightened credit conditions and the Federal Reserve’s (Fed) decision to raise interest rates.

Prior to the release of key PMI figures, the US Dollar Index corrected to approximately 103.00. It is anticipated that the Manufacturing PMI will expand to 47.2, compared to the previous release of 46.9.

It should be noted that factory activities have been in a contracting phase for the past seven months, and this trend is expected to continue due to the Fed’s implementation of higher interest rates. Additionally, the New Orders Index is predicted to rise to 44.0, surpassing the previous release of 42.6.

In the coming week, market focus will be on the Federal Open Market Committee (FOMC) minutes, which will provide detailed insights into the steady interest rate policy. However, Fed Chair Jerome Powell has already indicated that two small interest rate hikes are appropriate for this year.

Regarding the Japanese Yen, there is widespread anticipation of a hidden intervention by the Bank of Japan (BoJ) to address the consistent depreciation of the currency.

BoJ Deputy Governor Ryozo Himino remarked last week that signs of cost-push inflation are easing, while demand-driven inflation is gradually taking hold. This may be attributed to the expansionary interest rate policy and rising wages.


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