"The sharp decline in USDJPY during last Friday's session was not merely a routine technical pullback. Instead, it reflected the fact that the exchange rate had moved deep into a sensitive zone, where policy-related risks began to be priced more explicitly by the market. At the same time, the abrupt weakening of the US dollar also emerged as a key factor shaping the near-term direction of the pair."
"The US Dollar Index (DXY) fell for two consecutive sessions toward the end of last week and continued to trade at depressed levels during the Asian session this morning, at one point slipping close to 96.6. This development suggests that the dollar is losing short-term momentum-a condition that is particularly consequential for USDJPY, given that the pair attracts substantial positioning driven by carry-trade strategies."
"What has changed is the market's expectation: instead of pricing in further dollar appreciation, investors are now increasingly anticipating stability in a high-rate environment. As the element of surprise fades, capital flows have become more cautious, and the dollar is no longer treated as the default safe-haven asset in all circumstances. In recent days, the narrative surrounding a weaker dollar has extended beyond interest rates to encompass US policy and geopolitical risks."
USDJPY plunged because the exchange rate moved into a policy-sensitive zone where policy-related risks were being priced more explicitly. The US dollar weakened sharply, with the DXY slipping toward 96.6, signaling short-term dollar momentum loss. Short-term dollar weakness amplified carry-trade positioning effects on USDJPY. The dollar's fundamental support remained intact due to relatively high interest rates and yields versus most G10 currencies. Market expectations shifted from further dollar appreciation to stability in a high-rate environment, reducing surprise-driven capital flows. The dollar's automatic safe-haven role faded as geopolitical and US policy risks revived a 'sell America' trade, prompting dollar sales during risk reduction.
Read at London Business News | Londonlovesbusiness.com
Unable to calculate read time
Collection
[
|
...
]