The USD/JPY pair rapidly climbed above the 142.00 level in the European session, driven by the US Dollar’s resilience. Market participants are exercising caution ahead of Federal Reserve (Fed) Chair Jerome Powell’s testimony, contributing to the strength of the US Dollar.

Following losses in Asia, S&P 500 futures made a remarkable recovery, turning positive and reflecting a noteworthy rebound in market participants’ risk appetite.

HSBC economists suggest that investors should anticipate some consolidation due to increased valuations and the potential impact of further Fed tightening on future earnings estimates and valuations in the short term.

Nevertheless, we believe that the Fed is nearing the conclusion of its monetary policy tightening cycle, which should benefit US equities.

The US Dollar Index (DXY) is facing challenges in extending its recovery beyond 102.60 as market confusion arises regarding Jerome Powell’s guidance. Investors are closely monitoring whether Powell will adhere to the previous guidance of raising interest rates by an additional 50 basis points (bps) this year or adopt a more data-dependent approach.

Meanwhile, the Japanese Yen’s movement will be influenced by the release of the Consumer Price Index (CPI) data for May, scheduled for Friday. According to preliminary reports, the annualized headline CPI is expected to accelerate to 0.1%, compared to the previous release of 3.5%.

Core inflation, which excludes the influence of oil and food prices, is projected to rise to 4.4% from the previous release of 4.1%.

The Bank of Japan’s (BoJ) consistently dovish interest rate policy appears to be fulfilling its intended purpose. BoJ Governor Kazuo Ueda has emphasized that increased wages and domestic demand are necessary to further stimulate inflation within the country.


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