JPY Continues Rally Against USD

What’s happening: The Japanese yen rose against the US dollar with some easing in risk appetite after the Federal Reserve’s announcement yesterday.

What happened: The Japanese currency continued its rally versus the greenback for the fourth consecutive forex trading session as investors sold the US dollar after the Fed announced plans to keep interest rates near zero through 2022.

The yen has climbed more than 2% versus the greenback so far this week, with investors favouring the Japanese currency as a safe-haven choice. The announcement of an emergency budget worth approximately $300 billion by Japan's House of Representatives, the lower house of its parliament, also supported the yen.

Why it matters: The USD/JPY has been on a downtrend, with the Japanese yen rising against most major currencies. The yen became part of the best forex trading strategy amid growing concerns over tensions between the US and China, fuelled further by China's plans to implement a new security law in Hong Kong.

The Japanese economy has been suffering due to the covid-19 crisis. The country’s GDP contracted 2.2% in the first quarter and core machinery orders plummeted 12% in April, significantly worse than the expectations of an 8.6% decline.

To help the economy recover from the impact of the pandemic, the Japanese parliament has approved another stimulus program worth around $300 billion. The budget includes various subsidies for small businesses and cash pay-outs for medical personnel. The bill is expected to be enacted on Friday, following its approval by the upper house.

On the other hand, the US dollar suffered a setback due to protests against police brutality after the death of George Floyd. The US Federal Reserve yesterday announced plans to keep interest rates unchanged at near zero through 2022 and continue with its program to buy bonds. The news exerted further pressure on the greenback.

The USD/JPY fell to a one-month low to trade at 106.90 in today’s forex session.

What to watch: Currency market participants look forward to the Bank of Japan’s monetary policy meeting next week. The JPY outlook remains positive, especially with expectations of continued social unrest in the US and Western Europe. Forex markets also await the jobless claims data from the US, which is expected to impact the US dollar’s performance today.

European stock and indices trading will be in focus today, after markets closed mostly lower in the previous session.

Context: European stocks ended mostly lower on Wednesday with investors awaiting announcements by the US Federal Reserve after its policy meeting. The Fed announced its decision to keep rates unchanged after the close of the European markets.

Details: The US Federal Reserve said it plans to hold its benchmark interest rates close to zero till at least the end of 2022 and intends to continue with its program of buying bonds.   

The pan-European Stoxx 600 index closed lower by 0.2%, with most sectors closing in the negative zone. Travel-related shares were the worst performers, falling more than 2% in the previous session. London’s FTSE 100 slipped 0.1%, while the German DAX 30 index traded down 0.7% on Wednesday.

Shares of Just Eat Takeaway plummeted around 13% after the food delivery firm said it was in advanced merger talks with Grubhub.

European markets opened on a downbeat note today responding to the Fed’s cautious announcements. The German DAX 30 index opened lower by 2.5%, while the France CAC 40 slipped 2.1% at open. The FTSE 100 declined 2.3% today. 

What to watch: European stock and forex trading may remain under pressure today, with the US stock index futures also trading lower. Investors will continue to monitor coronavirus cases as experts predict a second wave of infections following the relaxation in lockdown measures.

Other Markets: US indices trading closed mostly lower on Wednesday, with the Dow Jones index and S&P 500 down by 1.04% and 0.53%, respectively. The Nasdaq 100 bucked the trend and gained 0.67% in the previous session.

South Africa’s manufacturing production and SACCI business confidence index, Mexico’s industrial production, Russia’s balance of trade, Argentina’s inflation rate as well as the US producer prices, initial jobless claims and natural gas stocks change.

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