USD/JPY Rallies as Fed Forecasts Less Rate-Cuts for 2025

US Dollar Outlook: USD/JPY

USD/JPY rallies to a fresh monthly high (154.64) even as the Federal Reserve implements a 25bp rate-cut at its last meeting for 2024, and the exchange rate may further retrace the decline from the November high (156.75) as it continues to hold above the 50-Day SMA (152.33).

USD/JPY Rallies as Fed Forecasts Less Rate-Cuts for 2025

USD/JPY breaks out of the range bound price action from earlier this week as the update to the Fed’s Summary of Economic Projections (SEP) shows that ‘the median participant projects that the appropriate level of the federal funds rate will be 3.9% at the end of next year’ instead of the 3.4% forecast at the September meeting.

Join David Song for the Weekly Fundamental Market Outlook webinar.

Forecasts for less rate-cuts from the Federal Open Market Committee (FOMC) may keep USD/JPY as Chairman Jerome Powell acknowledges that ‘our policy stance is now significantly less restrictive,’ and the central bank may continue to adjust its forward guidance in the months ahead as the FOMC can ‘be more cautious as we consider further adjustments to our policy rate.’

US Economic Calendar

In turn, the update to the US Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred gauge for inflation, may also sway foreign exchange markets as both the headline and core rate are projected to increase in November.

With that said, signs of persistent price growth may generate a bullish reaction in the Greenback as it puts pressure on the FOMC to further combat inflation, but a lower-than-expected PCE print may curb the recent advance in USD/JPY as it encourages the Fed to deliver more than two rate-cuts in 2025.

USD/JPY Price Chart – Daily

Chart Prepared by David Song, Strategist; USD/JPY on TradingView

USD/JPY extends the advance from the weekly low (153.16) to trade back above 153.80 (23.6% Fibonacci retracement), and the exchange rate may track the positive slope in the 50-Day SMA (152.33) as it holds above the moving average.
A breach above 156.50 (78.6% Fibonacci extension) may lead to a test of the November high (156.75), with the next area of interest coming in around 160.40 (1990 high).
At the same time, lack of momentum to test the November high (156.75) may keep USD/JPY within a defined range, with a move/close below 151.95 (2022 high) bringing the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone back on the radar.

Additional Market Outlooks

US Dollar Forecast: AUD/USD Approaches November 2023 Low

USD/CAD Pullback Keeps RSI Below Overbought Territory

US Dollar Forecast: EUR/USD Attempts to Halt Five-Day Selloff

Gold Price Forecast: Bullion Remains Below Pre-US Election Prices

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.