USD/JPY climbs to two-month high amid hopes of recovery

The US dollar spiked up higher for the fourth straight day against the Japanese yen, as investors remain buoyed by the reopening of economies.

The US dollar rallied for the fourth consecutive day against the Japanese yen.

The fiat currency climbed nearly 1.5% since the start of the week, and is trading at a two-month high of ¥109.088 as at 04:30 ET on Thursday 04 June.

USD/JPY ‘driven by interest to let go of safe haven yen’

This latest rally has taken place amid growing anticipation regarding the reopening of the US and other major economies, says IG Asia analyst Pan Jingyi.

‘With USD/JPY, prices had continued on a tear, driven primarily by the market interest to let go of the safe haven yen amid the improvement in risk sentiment,’ Pan explains.

‘The theme of reopening optimism continues to reign strong into this week within the FX market. Momentum trading also underpins the rally for the currency pair.’

In the near-term, Pan foresees a broad resistance zone of between ¥109.600 and ¥110.000 – prices last seen in late 2019 and early 2020.

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Similarly, the ongoing optimism had also driven US equity markets to close higher between Monday and Wednesday, with the three main stock benchmarks S&P 500, Dow Jones Industrial Average and Nasdaq 30 finishing Wednesday up 1.36%, 2.05% and 0.78%.

This upward trend is also despite current civil unrest within both the US and China (Hong Kong) in response to recent social and political issues, which appear to have minimal impact on investor sentiment for now.

USD tends to decline against the yen during uncertainty

As evident throughout the Covid-19 pandemic, whenever there was uncertainty and volatility in the markets, the greenback tended to decline against the yen, with investors preferring to accumulate the yen.

In February this year – when the virus first started to spread within the US, and uncertainty and panic were high, the USD had plummeted nearly 10% across a two-week period to a two-year low of under ¥105.000.

On the flipside, when the coronavirus death rates reportedly began to show signs of slowing down globally in April, the USD then rallied back above ¥109.000 – a level not seen until this latest rally.

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