USD / JPY Fundamental Daily Forecast – Dollar / Yen Firms As Investors Bet On An Anticipated Fed Cut

The dollar / yen closed higher on Friday, supported by rising U.S. Treasury yields as investors increased their bets on a faster-than-expected reduction by the Federal Reserve, following the release of a strong report on the producer price inflation.

The spread between US government bond yields and Japanese government bond yields widened, making the US dollar a more attractive asset. The gap widened after a government producer price report grew stronger than expected.

Gains were likely limited by a plunge in the US stock market. This may have sent investors to the safety of the Japanese yen.

USD / JPY stood at 109.912 on Friday, up 0.179 or + 0.16%.

10-Year Treasury Yields Rise As Producer Prices Rise More Than Expected

US Treasury yields rose on Friday morning as the Producer Price Index showed parts of the US economy still grappling with inflation.

Yields on the benchmark 10-year Treasury bond rose 3.9 basis points to 1.339%. The yield on the 30-year Treasury bill rose 3.5 basis points to 1.934%.

US producer prices exceed consensus estimate

The US producer price index rose 0.7% in August, above the consensus estimate of 0.6%. The reading marked a slowdown from the 1% increase in wholesale prices in July, but the index is now up 8.3% year over year, the biggest increase in at least 2010.

Fed’s Mester says she would still like to start cutting this year

Cleveland Federal Reserve Chairman Loretta Mester said on Friday she would still like the central bank to start cutting asset purchases this year, joining the chorus of policymakers making it clear that their plans to start cutting back their support had not been derailed by weaker job growth in August.

“I don’t think the August jobs report changed my view that we have made substantial progress” on both inflation and jobs, Mester told reporters.

The Fed’s policy-making committee will need to decide how best to move forward and there may be different opinions on what the “exact time” of the cut should be, Mester said.

But Mester said she would be comfortable with starting the cone this year and curtailing purchases in the first half of next year, repeating views she shared in late August.

For an overview of all of today’s economic events, check out our economic calendar.

This article originally appeared on FX Empire

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