USD/JPY surrenders majority of intraday gains as US Dollar retreats

• USD/JPY surrenders a majority of its intraday gains after a sharp rally in the opening session.
• The pair gives up gains as US Dollar falls back amid uncertainty ahead of US data.
• The scenario of a coalition government in Japan has diminished BoJ rate hike prospects.

The USD/JPY pair gives up the majority of its intraday gains after facing significant bids near 154.00 in Monday’s North American session. The asset showed a strong upside move in the opening session due to a sharp weakness in the Japanese Yen (JPY) but faced pressure at elevated levels as the US Dollar (USD) retreated after failing to extend rally.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls back after revisiting an almost three-month high of 104.60. The Greenback’s rally appears to have stalled as investors turn cautious ahead of a string of United States (US) economic data such as: JOLTS Job Openings and Personal Consumption Expenditure Price Index (PCE) for September, Q3 Gross Domestic Product (GDP), and the ISM Manufacturing PMI and the Nonfarm Payrolls (NFP) data for October, to be published this week.

The economic data will significantly influence market expectations for the Federal Reserve’s (Fed) likely interest rate action for the remaining two meetings this year. According to the CME FedWatch tool, traders have priced in a usual size rate cut of 25 basis points (bps) in November and are confident that a similar move will be performed in the December meeting.

Market participants are likely to focus more on the economic growth and labor market-related data as Fed officials are confident the inflation remains sustainably on track towards bank’s target of 2%.

Meanwhile, the outlook of the Yen has weakened as the Japanese economy is poised to run by a coalition government after the ruling Liberal Democratic Party (LDP) failed to get majority seats in the snap election. The scenario bodes poorly for forward growth as Shigeru Ishiba won’t be the only caretaker of the economy. This has also weakened hopes of more interest rate hikes from the Bank of Japan (BoJ) for this year.