USD/JPY Fundamental Daily Forecast – Could Soar if Trump Appoints Hawkish Fed Chair

The Dollar/Yen surged on Wednesday after overcoming a key technical area. The catalysts behind the spike to the upside were speculation that President Trump would appoint a hawkish Fed Chair and progress on U.S. tax reform.

The USD/JPY settled at 112.924, up 0.737 or +0.66%.

The dollar reached its highest level since October 6, supported primarily by this week’s jump in U.S. Treasury yields. The higher yields are making the U.S. Dollar a more attractive investment. The two-year U.S. Treasury yield rose to their highest since November 2008 on Wednesday on the back of expectations for tighter global monetary policy.

The benchmark U.S. 10-year Treasury yield touched a one-week high of 2.352 percent on Wednesday, and last stood at 2.241 percent, having risen six basis points so far this week.

Earlier in the week, Senate Republicans gained crucial support for a vote on a budget resolution that is vital to President Trumps Trump’s hopes of signing tax reform legislation into law before January.

In other news, U.S. housing data came in weaker-than-expected. Building Permits were 1.22 million units versus an estimate of 1.25 million units. The previous month was also revised lower. Housing Starts came in at 1.13 million units, below the 1.18 million unit estimate.

The U.S. Beige Book showed increased economic activity in all 12 Federal Reserve districts.

Forecast

In the U.S. on Thursday, investors will continue to respond to any news on Trump’s Fed Chair appointment and U.S. tax reform. The direction of U.S. Treasury yields will dictate the movement in the USD/JPY.

Economic data includes weekly Unemployment Claims, the Philadelphia Fed Manufacturing Index, the Conference Board’s Leading Index and Federal Budget Balance.

Trump has an interview scheduled on Thursday with current Chair Janet Yellen. She is one of five candidates Trump is considering for the job. Some investors are betting on the appointment of Stanford University economist John Taylor. The USD/JPY could soar if he is appointed because he is likely to start raising interest rates at a faster pace.

The White House said that President Trump’s decision on who will be the chair of the Federal Reserve could be announced in the “coming days”.