USD/JPY advances toward 131.00 mark as US authorities confidence in financial stability

• USDJPY rebounds from 129.50 after US authorities intervene to stabilize the market.
• Deutsche Bank's credit default swap surges, sparking investor panic and risk.
• Fed's Bullard and Barkin emphasize the need to tackle inflation despite financial stability concerns.

The USDJPY experienced a significant rebound from the 129.50 level after US authorities intervened to address market challenges stemming from rising credit default swaps among various banks. On Wednesday, the Federal Reserve (Fed) implemented a 25-basis point rate hike, and Fed Chair Jerome Powell reassured the market that all necessary steps would be taken to alleviate the liquidity crisis in the banking sector.

However, panic ensued as Deutsche Bank's credit default swap began to surge, leading to investor unease and increased risk in the market.

On Friday, Fed's Bullard emphasized the importance of reducing inflation despite current financial stability concerns. He acknowledged that the Committee could use macroprudential policy to mitigate financial distress if necessary. Fed's Barkin shared a similar view, noting tight labor markets and high inflation, and agreed that this week's rate hikes were justified.

In economic data, February's US Durable Goods experienced a 1.0% decline, contrary to the anticipated 0.6% increase. The US S&P Global Flash PMI for March exceeded expectations for both Manufacturing and Services, pushing the Composite Index to 53.3 from 50.1. Manufacturing remains in contraction, while services continue to expand.

Market focus now shifts to the upcoming US Personal Consumption Expenditures Price Index (PCE), Personal Income, and Spending data for Friday. Core PCE is expected to rise by 0.4% MoM in February, slower than January's 0.6% increase. The annual rate of core PCE is predicted to moderate to 4.3% YoY from 4.7%. US Personal Income is anticipated to increase by 0.3% MoM in February, slowing down compared to the 0.6% MoM growth in January. Personal Spending is also expected to rise by 0.3% MoM, a more moderate pace compared to the previous 1.8% increase.

Developments in the global banking sector will be crucial to monitor, as they may significantly impact market sentiment and trends. The efforts made by the Fed and other authorities to stabilize financial markets and address inflation concerns will play a key role in shaping future economic conditions.

Levels to watch