USD/JPY climbs above 140.50 as US GDP expanded at stronger pace in second quarter

• USD/JPY surpasses 140.50 as US Dollar Index discovers strength after upbeat US GDP and Durable Goods Orders data.
• US GDP expanded surprisingly at a higher pace of 2.4% and Durable Goods Orders data rose extremely higher by 4.7%.
• The BoJ is expected to deliver a strong message that the end of YCC is not far.

The USD/JPY pair jumps above the crucial resistance of 140.50 as the United States Bureau of Economic Analysis reports that the economy remained resilient in the second quarter. The asset discovers strength as the US Dollar Index (DXY) has rebounded swiftly after diving to near 100.60.

US Gross Domestic Product (GDP) was expanded surprisingly at a higher pace of 2.4% vs. 2.0% recorded for the first quarter. Investors were expecting that GDP expanded at 1.8% on an annualized basis. In addition to that, Durable Goods Orders data for June rose extremely higher by 4.7% against expectations of 1.05 and May’s figure of 1.8%. This indicates that the economic outlook of the US economy is extremely strong.

Also, weekly jobless claims for July 21 remained below expectations. For the week ending July 21, 221k claims were received from first-timers while expectations were of 235K. Tight labor market conditions and US economic resilience could force the Federal Reserve (Fed) to announce one more interest rate hike in September.

Fed Chair Jerome Powell mentioned in his commentary that September’s monetary policy will be largely dependent on economic data and upbeat economic indicators could open doors for one more interest rate hike, which will push interest rates to 5.50-5.75%.

Meanwhile, the US Dollar Index is marginally far from a two-day high of 101.58, prompted by upbeat economic data. S&P500 is expected to open on a bullish note following positive cues from overnight futures.

The Japanese Yen is expected to remain on tenterhooks ahead of the interest rate decision by the Bank of Japan (BoJ), which will be announced on July 28. Economists at Credit Suisse expect the FX market is clearly pricing in a significant probability of a hawkish development such as widening the YCC trading band for the 10-year JGB or sending a strong message that the end of YCC is not far.