USD/JPY reversed an early drop to one-week lows thanks to a mix of reasons.
The dollar was underpinned by a slight increase in US government yields, which remained favorable.
The safe-haven JPY benefited from the cautious atmosphere and capped the rise.
The USD/JPY pair reversed a one-week low in the Asian session and was last seen trading in the neutral zone, at 110.60-65.
Following rejection near the 111.00 mark on Monday, the pair saw some selling in the early hours of Tuesday trade, moving further away from YTD highs reached last week. However, a confluence of variables aided the USD/JPY pair to draw some dip-buying at the 110.40 zone, limiting any additional losses.
The US dollar was bolstered by rising expectations that the Federal Reserve may tighten its monetary policy sooner rather than later if price pressures continue to worsen. Another aspect that contributed to the USD/JPY pair’s intraday bounce of roughly 20-25 pips was a minor increase in US Treasury bond yields, which was perceived as another factor by USD bulls.
The current cautious tone in the equity markets, on the other hand, acted as a tailwind for the safe-haven Japanese yen, limiting any further advances for the USD/JPY pair. Investors appeared to be hesitant to make any big wagers, preferring to sit on the sidelines ahead of Friday’s release of the much watched US jobs data.
The widely publicized NFP data will have an impact on market expectations for when the Fed will tighten its monetary policy. This, in turn, will play a crucial part in driving the greenback in the short term and determining the next leg of the USD/JPY pair’s directional move.
Meanwhile, traders on Tuesday may be influenced by the Conference Board’s US Consumer Confidence Index, which will be released later in the early North American session. Aside from that, US bond yields and overall market risk sentiment will also help to generate some short-term trading chances in the USD/JPY pair.
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