Dollar Strengthens Ahead of FOMC as Yen Bears Flip

The US dollar has firmed up ahead of this week's Federal Open Market Committee (FOMC) decision, which is expected to include a 25bp interest rate hike. This shift in expectations has seen USD/JPY recover from last week's selloff and even attempt to grind higher. In contrast, AUD/JPY is testing major support after falling more than 4.6% in two weeks.

A September hike is now considered the base case, with futures pricing a 90% chance of a 25bp move on Wednesday, up from around 70% before Friday's CPI report. This has seen Goldman Sachs, JPMorgan, HSBC, and Deutsche Bank shift their expectations to a September hike.

While USD/JPY bulls may be eyeing the 155.60 level ahead of the FOMC decision, AUD/JPY bears are waiting for a potential bounce before re-engaging in fresh shorts.