- A combination of factors dragged USD/JPY to the lowest level since Tuesday, October 11.
- Despite COVID-19, risk aversion benefited the safe-haven JPY and exerted great pressure.
- A sharp drop in US bond yields weighed on the USD and contributed to the decline.
USD/JPY maintained its strongly offered tone during the early US session and was last seen trading in the 112.75-70 area, or the lowest level since October 11.
USD/JPY met with fresh bids on Tuesday.
Following the previous day’s two-way price movements, the USD/JPY encountered new bids on Tuesday. Extending its retreat from a near five-year high near the 115.50 area hit last week.
The safe-haven Japanese yen received a significant boost from the market’s risk aversion. Due to this, the pair continued to decline. As well as a broad-based weakness in the US dollar.
Concerns about the potential economic consequences of the spread of the new coronavirus variant have lowered global risk sentiment. The CEO of pharmaceutical firm Moderna warned that existing vaccines won’t be as effective as previous COVID-19 strains in fighting Omicron.
Meanwhile, the events surrounding the coronavirus scare have pushed back market expectations for when the Fed will start tightening monetary policy. Indeed, money markets now predict a 25-basis-point rate hike in September 2022, up from a 25-basis-point hike in July 2022. This led to a sharp drop in US Treasury yields. As well as the global flight to safety.
This, in turn, weighed heavily on the dollar, adding to the bearish pressure surrounding the USD/JPY pair. Aside from that, some technical selling below 113.00 may have contributed to the drop. Acceptance below the aforementioned level may have already paved the way for the corrective fall to be extended.
Market participants now look forward to the US economic agenda.
Market participants are now anticipating the release of the Chicago PMI and the Conference Board’s Consumer Confidence Index in the United States. The focus, however, will be on Fed Chairman Jerome Powell’s testimony before the Senate Banking Committee, which may have an impact on the dollar. The USD/JPY pair should gain some momentum as a result of this, as well as broader market risk sentiment.