Forex Top Team

Increased volatility in the dollar-yen exchange rate, unstable interest rate outlook, and Taiwan issue

Recently, the volatility of the dollar-yen exchange rate has increased. After peaking at the 139.39 level last week, it has fallen sharply to the 130.41 level this week. And today it bounces back to the 133.90 level. In the first place, the fluctuation range from the beginning of the year is 25.92 yen, which is extremely large in recent years. However, there has been a sharp shift in the market over the past few days. In the currency options market, the dollar-yen one-week volatility is trading at a high level of 15%.

The reason for the high volatility is that US House Speaker Nancy Pelosi’s visit to Taiwan has intensified the US-China conflict. Russia’s invasion of Ukraine lasted nearly six months, and at a time when the sensitivity of the market is declining, the issue of Taiwan is drawing the attention of the market.

However, basically the market seems to be sensitive to the US economic trend and the interest rate hike stance of the US FOMC. Yesterday, a series of remarks by hawkish members seemed to have caused the dollar/yen pair to rebound. In addition, there seemed to be a sense of relief that US House Speaker Nancy Pelosi’s visit to Taiwan had gone off without a hitch.

According to the current US CME FedWatch, 60% of the Fed’s interest rate hikes at the next September FOMC are 0.50%, and 40% are 0.75%. It should be noted that the 0.50% rate is still higher than the dollar-yen pair’s rebound from the previous day.

The trend of yen depreciation against the dollar is back again. We expect the high volatility to continue. Tonight, the US July ADP employment figures and US July ISM non-manufacturing index will be announced.

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