US bond yields and geopolitical risks drive demand for USD, with a 35% chance of a Fed hike next week supporting further gains in USD/JPY.
The US Dollar is strengthening as rising global bond yields, elevated geopolitical risks, and higher energy prices bolster its appeal. Markets are pricing in a 35% probability of a Federal Reserve rate hike next week, reinforcing Dollar buying interest.
USD/JPY is poised for further gains, supported by the Bank of Japan’s gradual policy normalization and a global rates backdrop. The DXY index’s prior high of 101.80 is now within reach, with a break above signaling additional bullish momentum. Japan’s core-core CPI rose 1.7% in June, while an adjusted measure excluding policy distortions stands at 2.7%.
The US Treasury’s semi-annual report avoided labeling any country a currency manipulator but noted the yen’s undervaluation, urging BoJ normalization to stabilize inflation expectations and reduce rate volatility.