News & analysis
Dollar Tests 200-Day Line as Fed Minutes Take Center Stage
USD/JPY touched 158.51, a level MUFG calls the gateway to further short-term gains, while traders price three more quarter-point hikes through mid-2027.
Key points
- USD/JPY's 158.51 high landed exactly on its 200-day moving average, a technical level MUFG says would open the door to further near-term dollar gains if breached.
- Markets still price three more quarter-point Fed hikes through mid-2027, and MUFG expects the September minutes to broadly endorse that path, keeping dollar support intact.
- An October hike looks unlikely, with only 5-6 basis points of pricing reflecting uncertainty ahead of next Wednesday's CPI release.
The dollar's advance against the yen reached 158.51, a high that sits right on the 200-day moving average, and MUFG said a clean break above that level would signal scope for further short-term gains. The test comes as traders await the September FOMC minutes, due this evening, for clues on how much further the fed funds rate can rise.
The upward momentum behind the dollar has cooled somewhat since last week's U.S. employment report, but MUFG noted the data did not meaningfully shift market expectations for the Federal Reserve. Traders continue to price three additional 25-basis-point hikes through mid-2027, a path that keeps the dollar's rate advantage intact even after the payrolls-driven pause in its climb.
Near-term odds of a move at the October meeting are low. Only 5 to 6 basis points of tightening are priced for that meeting, a reflection of uncertainty around the CPI report due next Wednesday rather than a change in the broader rate outlook. MUFG argued that a decision to hold in October would be unlikely to do much damage to dollar sentiment, because the market's focus remains on the cumulative path rather than any single meeting.
The September FOMC minutes, scheduled for release this evening, are the next input. Fed Chair Warsh said at that meeting the Fed was removing "a dose" of monetary accommodation and that he was "hard-pressed" to describe conditions as restrictive. The question for traders is whether that view is widespread across the committee and how members gauge financial conditions. Given the dots profile, MUFG expects the minutes to broadly endorse current market pricing for rate hikes ahead, which would sustain dollar support for now.
MUFG's own view diverges from that pricing: it still believes the Fed will not deliver what is currently priced in. But the firm tied any reassessment to evidence of slowing inflation measures, and said it is too soon for that evidence to appear. That leaves the technical level in focus — a sustained break of the 200-day moving average at 158.51 would confirm the short-term uptrend, while failure to clear it would leave the dollar's recent stall intact until the minutes and next week's CPI provide fresh direction.
