Yen Set to Gain Strong Grounds against US Dollar

On Friday, the Japanese yen took a flight against the US dollar, and its value reached a four-month high level. The major factor that helped the Japanese yen gain power against the USD was the hike in the interest rates in the United States.

US Interest Rates Reach their Peak Level

The United States recently shared its economic data for the quarter of June. According to the analysts, the interest rates they recorded in the June quarter had reached their peak level.

This meant that the country with the biggest economy in the entire world was experiencing a contraction that was completely unexpected. Based on the bets that had been placed on the USD in terms of the interest rates, the trading value of the USD took a negative hit.

This has led the trading price of the yen to gain momentum against the largest reserve currency.

Interest Rates in the US to Peak by December

It has become strong anticipation in the futures markets that the interest rates in the United States will have reached their peak by the end of December 2022. However, for the year 2023, the peak interest rates will be hit in the month of June.

By the beginning of July 2023, the Feds will start cutting the interest rates. In order to support slow growth, the Feds will begin to cut the interest rates by 50 bps in the year 2023.

The yen is Gaining Momentum against the USD

It has been observed that the constant rise in the interest rates in the United States has been proving beneficial for Japan. As the expectation of the interest rates in the United States rises, the value of the USD is moving in a downward direction.

This phenomenon is helping the Japanese yen gain momentum and weight against the USD, helping its value grow significantly.

For months, the trading price of the USD has been slumping against the Japanese yen. In the most recent week alone, the trading value of the USD has slumped 2.5% against the Japanese yen and it is the lowest that the USD has hit in four months.

Friday Performance of the Japanese Yen

Since mid-June, the value hit by the Japanese yen on Friday was the highest level it hit versus the USD. The performance chart shows that on Friday, the value of the yen has risen by 0.8% against the USD. After the rise, the value of the yen versus the dollar is 133.17.

Given the announcements made by the Feds in regards to the interest rates in the United States, it is expected that the value of the yen may continue rising against the USD. The yen may continue growing stronger against the USD until June of 2023 before the USD starts gaining momentum following interest rate cuts.