Yen Weakness Continues as Markets Bet on Fed Rate Hike

The Japanese Yen weakened at the start of this week amidst expectations that the US Federal Reserve will raise interest rates. The USD/JPY pair climbed on Monday, with the Greenback's demand picking up ahead of the Fed's decision on Wednesday. Markets are increasingly convinced that the Fed will hike borrowing costs, with a 90% probability of a quarter-point increase shown by the CME FedWatch Tool.

The view is supported by recent US inflation data, which showed price pressures staying above the central bank's 2% target. Reuters polled economists on Monday and found that 86 of 101 expect the Fed to raise its policy rate by 25 basis points to 3.75%-4.00% at the September 15-16 meeting.

The US Dollar Index (DXY) trades around 99.53, up 0.45% on the day. Higher energy prices due to escalating tensions in the Middle East are adding to concerns that inflation could stay elevated for longer, with US Treasury yields extending their rise across the curve.