USD Trades at Seven-Week High After FOMC

USD Talking Points:

• The US Dollar is trading at a seven-week high.
• This goes along with a rally in USD/JPY but as Scott Bessent alluded to last week, ‘he knows what the Bank of Japan is going to do.’ Tonight we will find out what he meant by that comment.

The US Dollar still seems to be a USD/JPY story and as such, after yesterday’s rate hike, the DXY basket has pushed up to its highest level since the intervention in the Japanese Yen which followed the prior FOMC meeting in July.

The Fed wasn’t dovish yesterday, with another rate hike forecast by year-end and this brings question to fundamental divergence with Japan as tonight’s widely-expected BoJ hike is already priced-in. Will the BoJ signal another hike along the way? Or will they have some other type of surprise for investors, that could help to push USD/JPY back down below the 155 level?

In the comments from Scott Bessent last week it seemed as though he knew something that we didn’t, and on the part of Japan, they’d probably want to see something that could compel Yen-strength as currency weakness combined with flying oil prices bring on the threat of inflationary pressure down the road.

In the USD, the DXY basket is trading above the psychological level at 100.00 and this marks a fresh seven-week high in the currency. This also shows a range breakout following a higher-low last week, and from a technical perspective, bulls have an open door to take a shot.

US Dollar Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

The Bigger Item in the USD, USD/JPY

Policymakers like Kazuo Ueda or Scott Bessent seem to both want USD/JPY lower, even if backing fundamentals and market forces suggest the other side of the trend is in favor. And this is likely one reason we saw such a forceful dual intervention after the prior FOMC rate decision, which sent USD/JPY spiraling by more than 800 pips.

But that sets up a tango in the pair given this dichotomous backdrop, in which longs from support, such as we saw established last week, can set up for short-term counter-trend scenarios while pushing above resistance becomes a more and more daunting situation, like we saw with the 160.00 handle a couple weeks ago.

The bigger question is what might happen that shocks longer-term bulls in closing out positions, like we saw after CPI prints in 2022, 2023 and 2024. Given the hawkish push from the Fed yesterday, that tenet doesn’t really exist at the moment. But if Ueda pledges to continued rate hikes to further normalize Japanese policy, that could possibly do it.

For now, USD/JPY is holding a similar pattern of higher-highs and lows as the broader DXY basket, and it’s the zone around 155.00 that seems key for directional biases at this point.

If the pair pushes below that by the end of the week, it’ll look as though a shift in control on the short-term trend which would echo what shows on the longer-term chart as sellers have made a massive push since the intervention in July.

USD/JPY Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro