USD/JPY set to reach the 125 mark soon – ING
23.03.2022, 08:33

USD/JPY set to reach the 125 mark soon – ING

USD/JPY continued its rally yesterday in line with yet another sell-off in bonds. Economists at ING expect the pair to reach the 125 level in the near-term. Meanwhile, the fierce hawkish re-pricing of Fed tightening expectations is set to offer a positive undercurrent to the dollar, mostly to the detriment of low-yielders. 

USD/JPY may touch 125 soon

“We still believe USD can count on the supportive undercurrent offered by rising hawkish bets on Fed tightening. Expectations about half-percentage increases have been boosted by recent comments by Chair Jerome Powell and other FOMC members (like James Bullard) and we are seeing markets moving to price in two back-to-back 50bp hikes in May and June (an option that is around 35% embedded into money market pricing).”

“Another question for the dollar is where markets find comfort with their expectations on the Fed’s terminal rate, which are currently around 2.75%, but may soon reach 3.00%. We think this is an environment that should favour the dollar, net of risk-sentiment swings, especially against low-yielders (exposed to higher yields) and European currencies (exposed to lingering uncertainty in Ukraine).”

“After easily breaking above 120, we think a USD/JPY move to 125 in the near-term is likely given the combination of upbeat risk sentiment and rising hawkish bets on the Fed.”

 

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