Trading volatility: USD/JPY on FOMC

(Video Transcript)

Get set for a flood of interest-rate decisions

Hello and welcome to trading volatility for the week starting 11 December 2023. We've got a plethora of interest-rate decisions by the likes of the US Federal reserve (Fed) on Wednesday and also the Bank of England (BoE) and the European Central Bank (ECB) on Thursday, which may add a bit of volatility to the US dollar.

And if we look, for example, at the dollar-yen, that's where I believe a lot of volatility will be seen because it already started this week when we had the Japanese central bank coming out and hinting at basically the possibility of reducing its very, very strong stimulus.

BoJ may be entering tightening cycle

As such, the Bank of Japan would be thereby entering a tightening cycle at a time when other central banks such as the Fed, the ECB and BoE are actually thinking about cutting their rates perhaps in the first or second quarter of next year.

So if you look at dollar-yen, we've already seen a very sharp decline on that expectation that the Japanese central bank might in future tighten earlier than was originally anticipated and that has led to some strength in the Japanese yen, taking it down to the 200 cents a moving average here, as you can see, to just below ¥142.

And next week we will probably see more volatility with regards to this currency pair. And if we were to fall through this week's low at ¥141.63, we could actually slide further all the way down to the July low around the ¥138 mark.

So probably further volatility to be seen in the days and weeks ahead with regards to the dollar against the Japanese yen.