3 Jul 2013
Flash: Tug–of-War between USD and JPY - JP Morgan
FXstreet.com (Barcelona) - The Fed hike expectations as 'Septaper' is further priced in by the market continues to push up the USD, with the rise in the 2-year rates, as JP Morgan Analyst Tohru Sasaki notes, often sited as indicators for reflecting expectation on future policy rates.
As Sasaki reminds, "A rise in short-term rates indicates a rise in funding costs, which causes de-leveraging and the USD to be bought back." If Fed hike expectations continue as well as US 2-year yields continue to rise, "we could continue to see USD/JPY rallying as the USD strengthens" Sasaki says.
The Analyst at JP Morgan refers to the correlation between USD/JPY and US-Japan 2-year rate spread – a bit unstable over the past few years –, as potentially having a greater role in the exchange rate setting, saying "it could start to strengthen again."
As Sasaki reminds, "A rise in short-term rates indicates a rise in funding costs, which causes de-leveraging and the USD to be bought back." If Fed hike expectations continue as well as US 2-year yields continue to rise, "we could continue to see USD/JPY rallying as the USD strengthens" Sasaki says.
The Analyst at JP Morgan refers to the correlation between USD/JPY and US-Japan 2-year rate spread – a bit unstable over the past few years –, as potentially having a greater role in the exchange rate setting, saying "it could start to strengthen again."