Dollar Slips as Rate-Cut Bets Swell; USD/JPY Hovers at Key Trendline Ahead of Tokyo CPI
The dollar softened broadly as traders ramped up bets on a December Fed rate cut, pushing USD/JPY to a pivotal technical juncture while the yen remains pressured by a patient Bank of Japan. Focus now shifts to Tokyo CPI and U.S. labor data for fresh direction.
Market Snapshot
- Soft private payrolls and reports on potential Fed leadership shifts weighed on the greenback.
- Money markets price roughly three-in-four odds of a December Fed cut as policymakers tee up the final meetings of the year.
- Yen underperforms with BoJ signaling patience; Tokyo CPI is the next key test.
Key Points
- USD weakens across G10 after softer ADP jobs data and chatter around Fed leadership adds to policy uncertainty.
- Fed cut odds for December near 75–76%, reinforcing a lower-yield backdrop and trimming dollar support.
- BoJ left rates unchanged; Governor Ueda’s focus on spring wage talks suggests a slow hiking path, with markets pushing back the next move into 2026.
- USD/JPY trades between converging trendlines; 158.87 and 153.50 are the next big levels.
- Tokyo CPI due Friday, followed by U.S. jobless claims and the Fed’s decision path—key catalysts for FX volatility.
Macro Drivers: Dollar Undercut by Policy Odds
A softer read on private payrolls added to the case for a near-term Fed cut, with futures now placing the probability of a December move near 76%. Comments from Fed officials—most notably New York Fed President John Williams signaling comfort with easing if conditions allow—kept U.S. yields subdued and the dollar on the defensive. A Bloomberg report suggesting Kevin Hassett has emerged as a frontrunner for the Fed chair role injected an extra layer of uncertainty around policy continuity.
With limited data before the next FOMC meeting, weekly jobless claims will help shape rate expectations at the margin. However, traders largely view the Fed’s decision—followed closely by NFP and CPI prints—as the decisive catalysts into year-end.
Yen: Policy Patience Still Pressuring JPY
The BoJ stuck to its wait-and-see stance at the last meeting, with two dissenters backing a hike but the majority signaling patience. Governor Ueda’s emphasis on spring wage negotiations implies no rush to tighten. While rapid yen depreciation nudged market-implied odds of a December hike to about one-third, the broader consensus is that any follow-up move is more likely much later, with some participants pushing timelines into early 2026.
USD/JPY Technicals
Daily Chart
USD/JPY is bouncing off a long-term ascending trendline as dip buyers defend support with tight risk below the line. A sustained rebound targets the 158.87 resistance zone. A decisive break beneath the trendline would flip momentum lower toward the 153.50 support.
4-Hour Chart
A minor descending trendline caps the latest pullback. Sellers are leaning into that line with risk defined just above it, aiming for a break under the major daily trendline. A topside break would likely trigger a push toward 158.87 as bullish momentum broadens.
1-Hour Chart
Price sits mid-range between the intraday downtrend line and the larger daily uptrend line. Traders are waiting for a break of either boundary for directional conviction. In the interim, expect two-way flows within the average daily range.
What to Watch
– Tokyo CPI (Friday): A firmer print could firm BoJ hike expectations and support the yen, especially if USD yields stay soft.
– U.S. Jobless Claims: Still the main near-term barometer of labor softening and rate-cut conviction.
– FOMC/NFP/CPI: The policy decision and subsequent growth/inflation data will set the dollar’s trajectory into year-end.
FX Strategy Views
– USD/JPY bulls: Need a clean break above the intraday downtrend to extend toward 158.87. Support at the daily trendline remains critical.
– USD/JPY bears: A daily close below the major trendline would open scope to 153.50, with momentum likely accelerating if U.S. yields slip further.
– Volatility: Expect pockets of elevated FX volatility around data drops; liquidity conditions may thin into the weekend, amplifying moves.
FAQ
Why did the dollar weaken this week?
U.S. private payrolls undershot expectations, reinforcing bets on a December Fed rate cut. Lower U.S. yields and uncertainty around Fed leadership also weighed on the dollar.
What are the key levels for USD/JPY?
On the topside, 158.87 is the next resistance zone if the pair breaks its minor downtrend. On the downside, a sustained move below the daily trendline would expose 153.50.
How could Tokyo CPI affect the yen?
A stronger Tokyo CPI print could lift expectations for a sooner BoJ hike, supporting JPY. A soft reading would likely keep pressure on the yen, especially if U.S. yields stabilize.
Are markets certain about a December Fed cut?
Futures price roughly 75–76% odds. Absent a major upside surprise in labor or inflation data, the bias favors a cut, but final conviction rests on the coming FOMC decision and subsequent NFP/CPI data.
What’s the near-term trading setup for USD/JPY?
The pair is coiling between an intraday descending trendline and a major daily uptrend line. Traders are watching for a breakout in either direction, with stops likely clustered just beyond these boundaries, per BPayNews market checks.
