📊 USDJPY declines due to strong U.S. labour data
USDJPY declined by 0.25%, while the U.S. Dollar Index (DXY) surged on Friday following the nonfarm payroll report (NFP) release. The data indicated a higher-than-anticipated number of jobs added in the previous month, reinforcing expectations of less dovish monetary policy by the Federal Reserve (Fed).
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Possible effects for traders
The U.S. dollar (USD) value increased after the Department of Labor announced that the U.S. economy added 256,000 new jobs in December, significantly surpassing the forecast of 160,000. Strong employment data indicates there is no need for the Fed to reduce interest rates rapidly. Jane Foley, Chief FX Strategist at Rabobank in London, stated that the Fed will likely reduce interest rates only once this year. However, if President Donald Trump's policies are implemented promptly, the chances for interest rate reductions may be lost entirely. During his presidential campaign, Trump suggested introducing tariffs, lowering taxes, and implementing a deportation of immigrants, which could potentially lead to rising inflation.
The University of Michigan's consumer sentiment survey revealed increased inflation expectations, strengthening the U.S. dollar. The report indicated that one-year inflation expectations rose towards 3.3% in January—the highest since May—up from 2.8% in December. Following the release, the market has started to anticipate a pause in the easing cycle at the January meeting. Analysts now expect only a 27-basis-point (bps) reduction in interest rates throughout 2025. They believe the next rate cut will likely occur at the June meeting. Meanwhile, recent events in Japan, such as the potential for continued wage growth and the impact of a weaker Japanese yen (JPY) on imported prices, have drawn the attention of central bank officials to increasing inflationary pressures. These developments have led to speculation that the central bank may adjust its price forecast upward this month.
During the Asian and early European trading hours, USDJPY continued its downward correction, which had started on Friday. Today, Respect for the Aged Day is celebrated in Japan, so analysts expect low volatility in JPY-related pairs and the continuation of previously established trends.
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