USD/JPY rallies to three-week highs and reclaim 130.00 on strong US Dollar, risk-off mood

• The USD/JPY gains some 2.45% in the week.
• Asian equity futures reflect a dampened market mood, though
• Fed officials backed 50 bps in the next couple of meetings and are set to tighten as needed.

The USD/JPY rallies past the 130.00 mark, a level last seen on May 12, when the major pulled back towards the 125.00 area, before resuming the ongoing uptrend as traders brace for a move towards a re-test of the YTD high at 131.34. At 130.19, the USD/JPY portrays the constant greenback strength amidst a risk-aversion environment.

Dampen market mood and fears of a US recession lifts the USD/JPY

Investors remain nervous, courtesy of global central banks’ tightening monetary conditions. Also, renewed fears of escalating the Russia-Ukraine conflict surfaced as the Russian military captured an industrial city in the Donbas region, while the US prepares to send additional weaponry to Ukraine.

Meanwhile, Asian equities are poised to a “flat” open, as shown by stock futures, recording minimal losses. The US Dollar Index, a gauge of the buck’s value, rose 0.75% on Wednesday, sitting at 102.542, a tailwind for the USD/JPY.

The yield on 10-year Treasuries spiked higher as traders raised bets on the path for rate hikes, and the Fed began its Quantitatitative Tightening (QT) process.

Positive ISM PMI and Fed speakers, boost the greenback

The US docket reported positive data, with May’s ISM Manufacturing PMI rising unexpectedly, lifting the USD/JPY towards a fresh three-week high. That, alongside Fed speakers crossing newswires, gave enough strength to lift the pair above 130.00. San Francisco Fed President Mary Daly and her colleague James Bullard both backed raising rates by 50 bps this month, while Richmond’s President Thomas Barkin said it made “perfect sense” to tighten policy.

An absent Japanese economic docket would keep USD/JPY traders leaning on US data. The US economic docket would feature the ADP May Employment report alongside Initial Jobless Claims for the week ending on May 28 and Factory Orders.