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Currently, the dollar-yen exchange rate is struggling to gain momentum, with a retreat in risk appetite-driven movements due to concerns about the decline in inflation in the United States. The U.S. Federal Reserve (FRB) indicated in the November 21st FOMC meeting that they would only raise interest rates if there was insufficient progress in inflation decline, leading to a decrease in the likelihood of additional rate hikes.
Although the November S&P Global Manufacturing PMI flash value fell below market expectations, the Services PMI flash value exceeded them, causing the dollar-yen to temporarily rise to 149.67 yen. However, concerns about inflation continue to have an impact, and on the 24th, the dollar-yen concluded at 149.47 yen, with a trading range of 147.15 yen to 149.99 yen.
Outlook for the Dollar-Yen Next Week
There is a possibility that the dollar-yen next week may face constraints on its upward movement. Recent cautious interest rate hike stances from the FRB in FOMC meetings and the decline in U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) suggest a trend towards inflation easing, and the market is anticipating a shift towards monetary easing.
The Core Personal Consumption Expenditures (PCE) Price Index for October, scheduled for release on November 30, is expected to decrease from the previous year’s +3.7%, as predicted. If this occurs as expected, there could be an increased expectation that the policy interest rate will remain unchanged in the December FOMC meeting, leading to a potential decline in the dollar. As long as the Bank of Japan continues its monetary easing measures, the likelihood of an expansion of risk-averse dollar selling and yen buying is considered low.
Middle East Situation and its Impact on the Foreign Exchange Market
If the situation in the Middle East improves, there is a possibility of increased yen selling against the Euro, British Pound, and Australian Dollar, leading to a dominance of dollar buying and yen selling in the foreign exchange market. The agreement on a ceasefire between Hamas and Israel in the Middle East prompted yen selling, contributing to the rise of the dollar.
If the improvement in the Middle East situation continues, there is a potential for continued risk preference for dollar buying in the dollar-yen exchange rate, leading to a relative selling of the yen.
Next Week’s Key Indicators and Market Impact
Next week, the U.S. Core PCE Price Index for October and the ISM Manufacturing Purchasing Managers’ Index (PMI) for November will be closely watched, with the potential to impact the dollar exchange rate. If the October Core PCE Price Index decreases as predicted, expectations for additional interest rate hikes may recede, leading to a decline in the dollar.
If the November ISM Manufacturing PMI improves more than expected, there is a possibility of a boost to expectations for additional interest rate hikes. However, if it falls below 50, there is also a possibility that this may have less impact on the dollar exchange rate. Within market expectations, the expected range for the dollar-yen next week is considered to be 147.50 yen to 151.50 yen.
Summary and Future Outlook
The current dollar-yen exchange rate is struggling due to concerns about inflation and the U.S. interest rate stance, but fluctuations may occur depending on the Middle East situation and economic indicators’ results. With inflation concerns continuing to dominate the market and U.S. interest rate hikes pending, the Middle East situation and economic indicators have the potential to influence the market.
It is crucial to monitor the results of next week’s indicators and international developments while checking the dynamics of the dollar-yen exchange rate. Investors need to respond sensitively to market changes, and careful positioning is essential.
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