USD/JPY surges to fresh monthly highs following robust US data

At 150.77, the USD/JPY pair reached a new high that was not seen since late October 2022. Both the US Q3 GDP preliminary estimates and September’s orders for durable goods exceeded forecasts.

The USD/JPY kept moving higher during Thursday’s session, peaking at 150.77 before levelling off at 150.35. In contrast to its competitors, the US dollar is trading strongly, as evidenced by the DXY index reaching new monthly highs and maintaining its momentum even as US Treasury yields are declining.

The markets are still placing more bets on the likelihood that the Fed won’t raise rates in 2023 despite strong economic activity data. In terms of data, the preliminary estimate for GDP growth in Q3 increased at an annualized rate of 4.9%, which was higher than the 4.3% predicted and higher than the previous reading of 2.1%. Furthermore, September’s Durable Goods Orders increased 4.7% MoM, significantly more than the 1.5% forecast.

Jobless Claims from the third week of September came a tick higher than the expectations. The dollar holds its foot despite lower US yields and dovish bets on the Fed. So, on the negative side, Jobless Claims increased from their previous reading of 200,000 to 210,000 for the week ending on October 21, exceeding the expected 208,000.

The yields on US bonds are declining in the interim. The longer-term 5- and 10-year rates decreased to 4.84% and 4.90%, respectively, while the 2-year rate fell to 5.05%, restricting the USD’s upward trajectory. Accordingly, the odds on a December hike of 25 basis points dropped to 20%, indicating that a pause in November is almost fully priced in.

The upward momentum of the USD/JPY will be limited as long as investors refrain from betting on one more hike by the Fed. Additionally, the pair may experience some downward pressure due to speculation about a policy tweak by the Bank of Japan (BoJ) and rising Japanese government yields.

Now, attention is focused on Friday’s US Consumption Expenditures (PCE) data from September, as the results may have an impact on projections for the upcoming Fed policy decisions.