Risk Aversion Lifts USD as Oil Prices Soar
The US Dollar has gained strength against the Japanese Yen as rising risk aversion lifts the Greenback. The USD/JPY cross is currently trading around 154.60, having rebounded from modest losses seen in the previous day.
The uptick in the US Dollar is attributed to increasing oil prices and growing Federal Reserve rate hike bets. Oil prices have risen towards nearly four-month highs following a drone attack on Saudi Arabia that forced the shutdown of a major crude pipeline.
Rising inflationary pressures, as evidenced by the 0.4% month-on-month increase in the US Consumer Price Index (CPI) in August, has intensified pressure on the Federal Reserve to tighten monetary policy further. The CME FedWatch tool indicates that financial markets have priced in an 87% probability of a quarter-point rate hike at the next meeting.
However, the upside of the USD/JPY cross could be restrained as the Japanese Yen may find tailwinds from expectations of faster Bank of Japan policy tightening. Markets anticipate the central bank will raise borrowing costs to 1.25% to address lingering price pressures, pushing rates to a peak not seen in over three decades.