- The dollar remains bid and reaches one-week lows near 113.50.
- Profit-taking hurts the USD as Fed tightening expectations wane.
- USD/JPY ready to extend gains beyond 115.00.
The US dollar is heading lower on Friday, extending its reversal from multi-year highs at 114.70 to session lows right above 113.55. The greenback is on track to post its first negative weekly performance since late August.
The US dollar dips as Fed tightening expectations wane
Investors’ expectations that the Federal Reserve would lead the world’s major central banks on the monetary policy normalization path, which had been boosting the US dollar over the last two months, have faded into the background, denting demand for the USD.
The market has been repricing monetary tightening expectations, as other central banks, like the BoE or the BoC, have started to anticipate the possibility of hiking rates to tackle inflation pressures.
Furthermore, profit-taking might also be responsible, at least in part, for the current dollar weakness. With the USD Index reaching one-year highs against its main rivals last week, some investors might have closed long positions.
The broader picture, however, remains fairly supportive of the greenback, with the yen hampered by an adverse monetary policy differential. The Federal Reserve is about to start rolling back its monetary stimulus program and will probably start hinting towards interest rate hikes in mid-2022. With the BoJ still immerse in an ultra-expansive policy and maintaining a yield control curve, the widening gap between the US and Japanese yields will remain clearly favorable for the USD.
USD/JPY: Seen appreciating beyond 115.00 – ING
According to the FX Analysis team at the ING Bank, the current reversal is just a corrective reaction ahead of further appreciation: “On USD/JPY, we do not want to miss out on a big upmove through 115.00. We have a conviction call that the Fed will have to turn more hawkish – USD positive against the low-yielders (…) We are very bullish on USD/JPY and see the correction finding support somewhere in the 113.20/70 area.”
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD holds gains above 1.0700, as key US data loom
EUR/USD holds gains above 1.0700 in the European session on Thursday. Renewed US Dollar weakness offsets the risk-off market environment, supporting the pair ahead of the key US GDP and PCE inflation data.
GBP/USD extends recovery above 1.2500, awaits US GDP data
GBP/USD is catching a fresh bid wave, rising above 1.2500 in European trading on Thursday. The US Dollar resumes its corrective downside, as traders resort to repositioning ahead of the high-impact US advance GDP data for the first quarter.
Gold price edges higher amid weaker USD and softer risk tone, focus remains on US GDP
Gold price (XAU/USD) attracts some dip-buying in the vicinity of the $2,300 mark on Thursday and for now, seems to have snapped a three-day losing streak, though the upside potential seems limited.
XRP extends its decline, crypto experts comment on Ripple stablecoin and benefits for XRP Ledger
Ripple extends decline to $0.52 on Thursday, wipes out weekly gains. Crypto expert asks Ripple CTO how the stablecoin will benefit the XRP Ledger and native token XRP.
US Q1 GDP Preview: Economic growth set to remain firm in, albeit easing from Q4
The United States Gross Domestic Product (GDP) is seen expanding at an annualized rate of 2.5% in Q1. The current resilience of the US economy bolsters the case for a soft landing.