The USD/JPY pair has extended its sharp recovery from 137.60 in the early European session. The major has regained strength as the US Dollar Index (DXY) has managed to defend its downside after printing a fresh day’s low at 103.00.
Market mood has turned quite positive as the S&P500 futures have recovered their entire losses generated in Asia. Investors are getting confident over US debt-ceiling raise as face-to-face negotiations between US President Joe Biden and House of Representatives Kevin McCarthy will provide might clear things at best.
Another catalyst that is supporting the cheerful market mood is the expectations of better relations between China and the United States. US President Joe Biden said at the end of the Group of Seven summit in Japan on Sunday, he expected ties with China to improve “very shortly” after a spat over an alleged spy balloon earlier this year derailed relations, per Bloomberg.
The USD Index has rebounded to near 103.20 and is looking to stretch its upside further despite the Federal Reserve (Fed) is expected to pause its aggressive policy-tightening spell as US banks’ tight credit conditions have squeezed liquidity disbursement in the economy.
On the Tokyo front, the Japanese economy is showing resilience as Q1 Gross Domestic Product (GDP) has expanded significantly by 0.7%. Also, inflationary pressures have rebounded due to wage growth and demand recovery. In spite of all this, a dovish interest rate stance by the Bank of Japan (BoJ) cannot be ruled out.
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