USD/JPY is showing little movement at the start of the week. In Monday’s North American session, the pair is trading at the 111 line. On the release front, Japan’s trade surplus narrowed to JPY 0.10 trillion in April, short of the estimate of JPY 0.25 trillion. In the US, we’ll hear from four FOMC members, and the markets will be looking for clues as to the Fed’s plans with regard to future rate hikes. On Tuesday, the US will publish New Home Sales.
The US dollar posted broad losses last week and the Japanese yen took full advantage, gaining 1.9 percent. The safe-haven yen has become an attractive asset for nervous investors, as the political turmoil which has gripped Washington has soured investors on the stock markets and the greenback. The yen’s gains mirror continuing trouble for the Trump administration, which is lurching from crisis to crisis. Last week Trump’s administration was rocked by reports that he had asked former FBI director James Comey to end an investigation into connections between Russia and the Trump campaign team during the US election. If these accusations are true, Trump could be charged with committing obstruction of justice. Trump couldn’t pack fast enough for his first official trip overseas, as he has been warmly received in Saudi Arabia and Israel. With Democrats smelling a bona fide scandal and the noxious term of "impeachment" being thrown around, Trump may face a chilly reception in Congress when he returns from his trip abroad.
What’s next for the Federal Reserve? With no data out of the US or Japan on Monday, the markets will have a chance to focus on the Federal Reserve, with four FOMC members delivering speeches. The Fed has been keeping the markets guessing in recent weeks regarding a rate hike. The central bank is expected to announce a rate hike at its June 14 meeting, but the odds of a hike have shown strong volatility. In late April, a rate hike was priced in at just 50%. The odds jumped higher in May but continue to show movement. Currently, the markets have priced in a hike at 78%, up from 73% on Friday. If the likelihood of a June move continue to fluctuate, the US dollar could also show some movement, as a rate hike will make US-dollar assets more attractive to investors.
