jpy fundamentals

US Dollar Strength Continues, Japanese Yen Down Ahead of Fed Meeting on Wednesday

Monday, 21 September 2009 20:52:46 GMT  |  Terri Belkas, Currency Strategist

The US dollar rallied once again on Monday, as daily RSI for the DXY index rebounded from oversold levels. Financial market price action reflected increased risk aversion, for the most part, as equities fell and the commodity dollars fell. That said, the Japanese yen was one of the biggest losers, which is unusual in that the currency usually rallies when carry trades fall. This was mostly attributed to the fact that Japanese markets will be closed through September 23 for various holidays, but the divergence may only be temporary as correlations frequently shift day-to-day.

The US dollar could continue to gain ahead of the Federal Reserve’s meeting on Wednesday, when the central bank is widely expected to leave the fed funds target range at 0.0 percent - 0.25 percent. The FOMC started saying in January that they continue “to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time,” and they’re likely to repeat this phrase once again. Furthermore, the last statement highlighted that the Committee's policy focus is to support the functioning of financial markets via quantitative easing (QE) and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. Such statements have historically been bearish for the US dollar, but the statement ultimately shouldn’t ignite significant volatility unless the FOMC announces a change to their QE program or starts to signal a bullish bias for interest rates down the line.

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