Forex News
- USD/JPY rises to the highest since July 2024 around 159.15 in Wednesday’s early Asian session, up 0.61% on the day.
- Japan's fiscal spending concerns and political uncertainty undermine the Japanese Yen.
- Fed has more room to cut rates after inflation data.
The USD/JPY pair jumps to near 159.15, the highest since July 2024, during the early Asian session on Wednesday. The Japanese Yen (JPY) weakens against the US Dollar (USD) amid concerns about looser fiscal and monetary policy in Japan. Traders will keep an eye on the US Retail Sales and Producer Price Index (PPI) reports, which will be published later on Wednesday.
Political uncertainty in Japan could weigh on the JPY and create a tailwind for the pair in the near term. Japanese Prime Minister Sanae Takaichi may call an early general election in February, Reuters reported on Sunday.
“The implications for the yen are quite negative because Takaichi is a dove on both the fiscal and monetary fronts, so fiscally she would be very comfortable with a looser, higher deficit policy,” said Eric Theoret, currency strategist at Scotiabank in Toronto
On the other hand, the prospect of further US interest rate cut this year could drag the Greenback lower. The Consumer Price Index (CPI) inflation readings were seen as potentially giving the Federal Reserve (Fed) more room to cut rates as policymakers balance concerns about still sticky price pressures against a weakening labor market.
After Fed Chair Jerome Powell and other policymakers deployed three rate cuts since September, Fed funds futures traders' pricing showed that a cut is not seen as likely until June.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Federal Reserve (Fed) Bank of Richmond President Thomas Barkin said on Wednesday that countries that safeguard monetary policy autonomy tend to achieve better economic outcomes, as political pressure on the US Federal Reserve remains in focus.
Key quotes
Central bank independence delivers better outcomes.
Declines comment on political pressure facing the Fed.
Inflation above target but not accelerating.
Unemployment ticking up but remains contained.
Businesses showing less appetite to pass through prices.
Market reaction
At the time of writing, the US Dollar Index (DXY) is trading around 99.17, up 0.28% on the day.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
- Silver hits a record $89.11 before pulling back, still posting solid gains on the session.
- RSI divergence hints at waning momentum, though the broader uptrend structure remains intact.
- Resistance sits at $87.00 and $88.00, while $86.23- and $85.50-mark key supports.
Silver price (XAG/USD) registers gain of 2% on Tuesday after reaching an all time high of 89.11 as the Greenback recovers amid a soft inflation report in the United States. At the time of writing, XAG/USD trades at $86.91 after bouncing off daily lows of $83.45.
XAG/USD Price Forecast: Technical outlook
Silver’s uptrend remains intact as buyers pushed the grey metal to record high near the $90.00 figure. Although price action reached successive series of higher highs and higher lows, it seems that the move is overextended.
There are signs of divergence between price action and the Relative Strength Index (RSI), which hints that buyers are losing momentum.
Despite this, the path of least resistance is tilted upwards. XAG/USD first resistance will be the $87.00 figure followed by the $88.00 mark and the all-timer high at $89.11.
On the flip side, XAG/USD first support would be the January 12 high at $86.23, followed by the $85.50 area. A breach of the latter will expose the $80.00 a troy ounce barrier.
XAG/USD Price Chart – Daily
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
- Gold dips modestly as stable US CPI reinforces expectations for Fed easing later in 2026.
- A firmer US Dollar and neutral-to-hawkish Fed rhetoric limit upside despite cooling inflation signals.
- Geopolitical tensions and Fed independence concerns remain medium-term tailwinds for Bullion prices.
Gold (XAU/USD) retreats modestly on Tuesday following the release of December’s inflation data in the US, which confirmed that prices remain stable, an indication that further rate cuts by the Federal Reserve may lie ahead. XAU/USD trades at $4,590, down 0.15%, after briefly hitting a record high of $4,634 earlier in the day.
Bullion eases after US inflation confirms cooling trends, while geopolitical risks keep downside contained
The Greenback clings to gain a headwind for Bullion prices, despite the Consumer Price Index (CPI) print for December was mostly aligned with forecasts. Headline and core inflation seem to have stabilized, with both prints remaining steady compared to the previous month, according to the Bureau of Labor Statistics (BLS).
Other data revealed that the labor market is improving, while St. Louis Fed President Alberto Musalem struck a neutral to hawkish tone in his speech earlier.
Money markets had priced 50 basis points of easing towards the end of the year, according to Prime Market Terminal. Nevertheless, over the weekend, developments of the Department of Justice indictment of Fed Chair Jerome Powell, a threat to Fed independence, reduced the chances for a rate cut at the January meeting.
Geopolitics and further US data ahead
Threats to Fed independence and tensions arising in the Middle East, adding to ongoing geopolitical risks, are tailwinds for Bullion prices.
US President Donald Trump announced tariffs of 25% on countries that do business with Iran, exerting pressure on China and Russia, two of Iran’s trading partners.
The US economic docket will feature the release of the Producer Price Index (PPI) for October and November, Retail Sales for November and speeches by a flurry of Fed officials.
Daily digest market movers: Gold dips in tandem with US yields
- The strength of the is one of the main reasons behind Gold’s modest dip. The US Dollar Index (DXY), which tracks the buck’s value against a basket of six currencies, is up 0.26% to 99.15. Conversely, US Treasury yields are sliding, led by the 10-year T-note, which is down nearly two basis points at 4.167%.
- The US CPI in December was unchanged from November’s, aligned with estimates at 0.3% MoM. On an annual basis, prices increased by 2.7%, as expected, and unchanged from the previous month.
- Core CPI rose 0.2% MoM, missing forecasts of 0.3% and matching the previous month reading.In the twelve months through December, it remained unchanged from November’s at 2.6%.
- The ADP Employment Change 4-week average improved from 11K to 11.75K.
- New Home Sales in October fell 0.1% MoM from 738K in September to 737K. The Commerce Department revealed that on an annual basis, sales jumped 18.7% YoY for the same period, as mortgage rates and declining prices could support the housing market.
Technical analysis: Gold price struggles at $4,600
Gold’s broader uptrend seems to pause as buyers failed to clear the $4,650 mark, which could’ve put into play the $4,700 mark. Bullish momentum is fading as depicted by the Relative Strength Index (RSI), which turned slightly flat near overbought territory, but failed to record a higher high.
For a bullish continuation, Gold must clear $4,650. Conversely, if XAU drops below $4,550, this could embolden sellers to push prices back toward the $4,500 intraday low, with the $4,400 threshold emerging as the next key downside target.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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