USD surges as Fed expected to prolong policy rates

The U.S. dollar-yen pair is trading around 155.30 in European markets on Wednesday, marking a third consecutive day of gains, due to the possibility of the Federal Reserve’s prolonging higher interest rates.

Furthermore, hawkish remarks from Minneapolis Fed President Neel Kashkari have strengthened the Greenback, thereby underpinning the USDJPY pair.

As reported by Reuters on Tuesday, President Kashkari’s remarks imply an anticipation of unchanged interest rates for a considerable period. While the likelihood of rate hikes is low, they are not entirely discounted.

According to Bloomberg, Richmond Fed President Thomas Barkin remarked on Monday that elevated interest rates could likely restrain economic growth in the US. However, higher interest rates can help alleviate inflationary pressures, bringing them closer to the central bank’s 2% target.

Last week, the Yen saw appreciation amid speculations of potential intervention by Japanese authorities.

Reuters reported data from the Bank of Japan (BoJ) suggesting that Japanese authorities may have allocated approximately ¥6.0 trln on April 29 and ¥3.66 trln on May 1 to support the JPY. However, these interventions could only provide temporary relief, given the significant interest rate differentials between Japan and the US.

Despite continued warnings from Japanese authorities against extreme currency movements, the Japanese Yen depreciated.

Finance Minister Shunich Suzuki reiterated the warning that authorities are prepared to respond to excessive foreign exchange volatility, while BoJ Governor Kazuo Ueda stated that they will assess the impact of Yen movements on inflation to inform policy decisions.

(Source: OANDA)