The Dollar/Yen is down sharply early Tuesday, continuing the plunge from the previous session. Safe-haven buying and expectations of a dovish Fed later this week is driving investors into the Japanese Yen. The major stock indexes were trading lower across the board in Asia as investors awaited a key speech by Chinese President Xi Jinping.
At 0423 GMT, the USD/JPY is trading 112.495, down 0.337 or -0.31%. On Monday, the Forex pair lost 0.50%.
The major U.S. stock indexes fell sharply on Monday as investors expressed concerns over a slowdown in the global economy. Furthermore, many investors pared positions because of uncertainty ahead of Wednesday’s U.S. Federal Reserve interest rate and monetary policy decisions. Investors are also worried about the Federal Open Market Committee’s new economic projections and what Fed Chair Powell will say in his post-meeting press conference.
The U.S. Federal Reserve is widely expected to raise its benchmark interest rate for a fourth and final time of 2018 on Wednesday. The hike of 25 basis points will put the key overnight lending rate at 2.50%.
While fears of rising interest rates may have initiated the stock market sell-off in early October, investors are hoping Powell tries to calm the markets by delivering a more subdued message about economic growth and the number of rate hikes to expect in 2019.
Powell is going to have to be careful, however. He cannot spook investors into selling even more aggressively by painting a gloomy picture of the economy. Powell has to come across as bearish enough to potentially jump-start another stock market rally.
In his speech on Tuesday, Chinese President Xi Jinping presented a somewhat defiant front toward international calls for major changes in his country’s economy.
“No one is in a position to dictate to the Chinese people what should or should not be done,” Xi said in Mandarin Chinese during his address, according to translation.
He also called for China to “stay the course” on its current path of reform.
U.S. equity futures retreated from their highs during the speech which doesn’t bode well for the USD/JPY on Tuesday. If investors feel that China is going to make it difficult to achieve a trade deal with the U.S. by the March 1 deadline then they are likely to resume selling pressure in the cash markets on Tuesday. Another steep stock-market sell-off will continue to encourage investors to seek shelter in the safe-haven Japanese Yen.
This article was originally posted on FX Empire
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