USD/JPY bounces back to near 143.30 with Fed’s policy in spotlight
- USD/JPY gains ground as the Japanese Yen underperforms its peers on hopes of de-escalation in the US-China trade war.
- Both the US and China have agreed to trade discussions this week.
- The Fed is almost certain to leave interest rates steady.
The USD/JPY pair rebounds to near 143.30 on Wednesday, snapping the three-day losing streak. The pair gains ground as the Japanese Yen (JPY) underperforms across the board. Investors have trimmed longs in Yen as its safe-haven appeal has diminished after Washington confirmed to have trade talks with China this week in Switzerland.
On Tuesday, US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer confirmed that they will meet their Chinese counterparts for trade and economic discussions this week in Switzerland. Bessent said that discussions would be more about de-escalating the trade war than negotiating a deal.
“My sense is that this will be about de-escalation, not about the big trade deal,” Bessent said, according to CNBC.
Investors see the event as a constructive move by both nations toward ending the trade war, which has led to a decline in demand for safe-haven assets. The demand for the JPY as a safe-haven has remained upbeat in the last few weeks due to uncertainty over the US-China trade outlook.
Domestically, traders doubt that the Bank of Japan (BoJ) will raise interest rates in the near term due to cracks in the global economic outlook amid disruptive trade policies by US President Donald Trump.
Meanwhile, the US Dollar (USD) trades in a narrow range around 99.40, at the time of writing, ahead of the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT.
According to the CME FedWatch tool, traders have fully priced in that the central bank will keep interest rates steady in the range of 4.25%-4.50%. Therefore, the major trigger for the US Dollar will be monetary policy guidance by the Fed for the remainder of the year.
The Fed is expected to face a hard choice between holding interest rates long enough until it gets clarity on the economic outlook in the face of new economic policies announced by US President Trump and acting prematurely.
Economic Indicator
Fed Interest Rate Decision
The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).
Read more.Next release: Wed May 07, 2025 18:00
Frequency: Irregular
Consensus: 4.5%
Previous: 4.5%
Source: Federal Reserve