USD/JPY four-decade high remained in focus on Tuesday as the pair held near recent peaks before the Fed and Bank of Japan policy decisions.
The US dollar started the week lower after the United States stopped its strikes following 13 straight days of attacks. Iran also said it would keep a ceasefire in place as long as the United States stayed on pause. As a result, traders saw a possible easing in tensions, and oil prices fell.
However, the dollar later reversed those losses and reached a fresh weekly high. The source said that move did not come from Treasury yields or economic data. Instead, it pointed to possible hedging before Wednesday’s FOMC decision.
USD/JPY Four-Decade High Nears Key Events
The Fed is expected to leave interest rates unchanged. However, the source said one or two officials could dissent in favor of a rate hike. It also said guidance may stay limited under Fed Chair Warsh, while recent policymaker comments suggest monthly inflation readings will shape any future tightening pace.
On the Japanese side, the Bank of Japan is also expected to keep rates steady on Friday. Meanwhile, traders will watch for higher growth forecasts and a possible upgrade to the near-term inflation outlook. The source added that attention will center on guidance after a Bloomberg report said some BoJ officials saw the weaker yen as adding upside inflation risk and were open to faster rate increases.
Following that report, traders moved up their rate hike bets. There is now a 60% chance of an October move, compared with December before the report, according to the source. The yen jumped after the story, although it later gave back those gains.
Technical Levels and Data in Focus
The source said Japanese officials may look at stealth intervention to slow the yen’s decline. However, it added that the broader trend is unlikely to change without a dovish shift in Fed rate expectations or a faster BoJ tightening path. Traders will also watch BoJ Governor Ueda’s press conference for any hint of quicker tightening.
On the daily chart, USD/JPY broke above 162.85 and then pushed to new cycle highs before consolidating. The source said 162.85 may now act as support. If that level breaks, sellers may target 160.50 next.
On the four-hour chart, an upward trendline continues to define the bullish structure, according to the source. On the one-hour chart, price action has stayed rangebound since last week.
Later on Tuesday, traders will watch the US Consumer Confidence report and the Trump-Netanyahu meeting. Wednesday brings the FOMC rate decision, while Thursday includes the US PCE price index, advance second-quarter GDP and jobless claims. Friday features Tokyo CPI, the BoJ decision and the US second-quarter Employment Cost Index.
You can access our other news on Forex markets and global market developments here.
Source: InvestingLive
