USD/JPY Climbs Multi-Month Highs Amid Ongoing Yen Weakness
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USD/JPY climbed to around 159.45, marking its highest level since late 2024. The Japanese yen kept extending losses in global markets, while the US dollar remained firm following steady US inflation data[1]. This reflects persistent speculation over Japan’s political outlook and ongoing resilience in US macro data.
The Yen has depreciated amid expectations of a potential snap election in Japan[2], which could occur as early as February and may lead to increased government spending. Market participants are responding to the so-called “Takaichi trade,” named after Prime Minister Sanae Takaichi, who advocates for more accommodative fiscal policy and additional stimulus measures[3]. Recent reports indicate that the Yen is at its weakest level[4] against the Dollar in eighteen months, with USD/JPY approaching 159.45 following declines driven by political uncertainty and subdued demand in Japanese bond auctions.
In the US, the dollar remained strong after December’s Consumer Price Index (CPI) data aligned with expectations and indicated stable inflation[5]. This outcome reinforces the perspective that the Federal Reserve (Fed) is likely to maintain its current monetary policy stance in the near term[6].
Markets look ahead to forthcoming US economic data and developments in Japan’s election outlook to inform projections regarding the future trajectory of USD/JPY. The USD/JPY exchange rate looks poised to test the 160.00 level as yen weakness persists and US data underpin dollar support.
USD/CAD Holds Gains as Inflation Backs Fed Patience
USD/CAD held steady around 1.3900 for a second session on Wednesday, with the US dollar underpinned after inflation data met forecast expectations. The pair’s stability reflects ongoing demand for the Greenback ahead of key economic releases and persistent uncertainty over Fed policy.
US CPI data for December showed an increase of 0.3% MoM and an increase of 2.7% YoY, both in line with market consensus, indicating stable inflation. US Core CPI, excluding food and energy, advanced 0.2%, also in line with expectations[7]. The data reinforces the view that the Fed is likely to maintain current rates in the near term[8].
US job market data has remained strong, reducing expectations for quick rate cuts and supporting the dollar. In Canada, the loonie is still affected by energy prices and overall market risk. While higher West Texas Intermediate (WTI) crude prices, now near multi-month highs, give some support to the CAD, it is not enough to outweigh the strong US dollar[9].
Market focus now turns to upcoming economic releases from the US[10] and Canada, including retail sales and employment data[11][12], which are likely to influence the near-term direction of USD/CAD. The USD/CAD exchange rate stays near 1.3900 as dollar strength persists, though oil dynamics could temper further advances.
GBP/USD Drifts Lower with Focus on US Macro Releases
GBP/USD slipped to 1.3425 in early Asian trading on Wednesday, weighed down by renewed US dollar demand ahead of key US economic data.
US CPI data for December largely met market expectations, and core inflation rose to 2.6%, slightly below consensus forecasts. These results suggest price pressures remain contained, allowing the Fed to maintain its currency policy stance in the coming months[13].
Market analysts observed that the initial market response to the softer core CPI was brief, as the data did not significantly alter expectations for future rate cuts[14]. Markets now anticipate the Fed’s next move to depend on upcoming US economic releases, including Retail Sales and Producer Price Index (PPI) data[15].
Ongoing concerns about the Fed's independence have not slowed the dollar’s recent gains[16]. The Bank of England (BoE) maintains a cautious outlook after lowering rates to 3.75% in December, with the prospect of further easing possible through 2026 as inflation and labour markets moderate[17].
Sterling remains without a clear catalyst while the dollar holds firm, keeping GBP/USD under near-term pressure. The GBP/USD exchange rate is likely to remain under pressure near current levels as dollar demand resurfaces ahead of key US data.
EUR/USD Range-Bound as Strong US jobs Temper Easing Bets
EUR/USD stayed close to 1.165 in early Asian trading on Wednesday, with strong US labour data and steady inflation supporting the dollar.
Recent EUR/USD weakness reflects broad dollar strength rather than euro-specific factors. December US inflation data was largely benign. Headline CPI met expectations, and underlying inflation edged slightly lower on an annual basis. In isolation, the figures would support further Fed rate cuts[18], consistent with market pricing.
However, recent labour market data have complicated this outlook. Strong US Nonfarm Payrolls[19], a lower Unemployment Rate[20], and a solid four-week ADP Employment Change average[21] indicate the US job market remains resilient. Last year’s rate cuts were prompted by labour market weakness despite high inflation. That dynamic is currently absent, leading markets to scale back near-term easing expectations[22].
Meanwhile, political tensions around the Fed have eased, after US President Donald Trump renewed criticism of Fed Chair Jerome Powell following the CPI release[23]. Trump argued the inflation data justified significant rate cuts, but markets showed little reaction[24].
Fed officials have maintained a cautious tone. St Louis Fed President Alberto Musalem stated the US economy is likely to grow at or above potential in 2026, reinforcing the view that policymakers are not rushing to ease policy[25].
The euro remains rangebound, with only mild downside pressure and no clear break from established levels. Focus now turns to upcoming US PPI and Retail Sales releases, along with ECB commentary[26], for further policy signals.
In the eurozone, inflation remains close to the ECB’s 2% target[27][28], indicating little urgency for major policy changes. The absence of new economic catalysts has reinforced range-bound EUR/USD trading, with the pair remaining sensitive to dollar movements rather than euro-specific factors. The EUR/USD exchange rate remains anchored near current levels as strong US labour data continues to support the dollar and limit euro upside.
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