- USD/JPY retraces to near 144.50 as the US Dollar gives up the previous day’s gains ahead of the US NFP data for April.
- Easing US-China trade tensions have increased the risk appetite of investors.
- BoJ Ueda signaled that plans of monetary policy tightening have been swayed by Trump’s tariff policy.
The USD/JPY pair faces selling pressure after a three-day recovery move around 146.00, earlier in the day, and corrects to near 144.50 during European trading hours on Friday. The pair retraces as the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, gives up Thursday’s gains and slides to near 99.65.
The US Dollar (USD) surrenders previous day’s gains as investors turn cautious ahead of the United States (US) Nonfarm Payrolls (NFP) data for April, which will be published at 12:30 GMT. The economic data is expected to have been severely impacted by US President Donald Trump’s tariff agenda.
Economists expect US employers to have hired 130K fresh workers, significantly lower than the March reading of 228K. The Unemployment Rate is seen as steady at 4.2%. Signs of cooling labor market conditions would strengthen market expectations that the Federal Reserve (Fed) would start reducing interest rates from the June policy meeting.
Meanwhile, market sentiment has turned favorable for risky assets on hopes of a de-escalation in the trade war between the US and China. The Chinese Commerce Ministry signaled willingness to come to the table for trade discussions with the US with the stipulation that talks should be based on “sincerity”.
Though the Japanese Yen (JPY) is up against the US Dollar on Friday, its outlook has become uncertain as the Bank of Japan (BoJ) has signaled a delay in plans to increase interest rates further in the face of tariffs announced by US President Trump. “We will enter a period in which both inflation and wage growth will likely slow somewhat,” BoJ Governor Kazuo Ueda said in the press conference, Reuters reported.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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