USD/JPY is expected to come under renewed focus next week as the divergence between Japanese and US monetary policies is reassessed, while geopolitical risks and the impact of higher crude oil prices will also be watched closely. EUR/USD is expected to remain capped by pressure to buy the dollar.
USD/JPY is expected to remain focused on the divergence in the monetary policy stances of Japan and the United States next week, with the yen weakening and the dollar strengthening as concerns over higher crude oil prices support the trend.
The Federal Open Market Committee (FOMC) recently expressed a more hawkish view than the market had expected, while the Bank of Japan stressed its cautious stance on additional rate hikes. This divergence in interest rates and monetary policy is expected to support USD/JPY.
As tensions in the Middle East escalate, the risk of a sharp rise in crude oil prices is increasing, potentially strengthening upward pressure on the dollar through higher long-term US interest rates. Some analysts believe geopolitical risks could trigger demand for the dollar as a safe haven in the event of an emergency.
Key US economic indicators due this weekend, including the US employment report, will also be a focus for the market. If the data exceed market expectations, expectations for additional rate hikes will strengthen, making a further rise in the dollar more likely to come into focus. Quarter-end fund flows will also require attention.