The ‘Trump Trades’ will remain the key driver for USD in near term along with recent hawkish comment from Powell. Meanwhile, JPY faces bearish pressures due to BoJ’s cautious stance and Japan’s political uncertainty, with no major policy changes expected soon.

USD: ‘Trump Trades’ & Hawkish Powell

In the near term, "Trump Trades" are expected to continue drive market sentiment and support the USD, especially with Republicans now in control of the White House, Senate, and House of Representatives. This "Republican Sweep" is likely to result in moderate fiscal expansion, increased tariffs (primarily targeting China), and reduced net immigration. These policy shifts could support higher growth and inflation in the U.S., potentially prompting a more hawkish reevaluation of the Fed's rate-cutting cycle.

On the policy front, October’s U.S. CPI meeting expectations keeps the Fed on course for a 25 basis point rate cut in December. However, a gradual pace of easing remains likely, with potential pauses as we head into 2025, influenced by Trump’s policies. Fed Chair Powell's recent remarks also leaned hawkish. He stated that current economic indicators do not suggest urgency to lower rates and that economic resilience allows the Fed to make careful decisions. Powell noted that policy adjustments will aim toward neutral over time, though the path may not be smooth, and reiterated his expectation for inflation to gradually approach the 2% target. Commenting on the latest PPI report, Powell acknowledged a minor upward bump but maintained that inflation is on a stable track. He added that current policy positioning allows for rate cuts if needed, yet with a cautious approach.

Overall, the "Trump Trade," Powell's hawkish stance, and the resilient U.S. economy are likely to provide support for the USD in the near term. However, much of the positive impact from the "Trump Trade" has already been priced in, leading to potential near-term profit-taking. Despite this, the overall outlook for the USD remains strong. Looking ahead, market attention will shift to preliminary PMI data; any significant downside surprise could offer buy-the-dip opportunities. U.S. politics will continue to be a key driver for the USD, adding further volatility and influencing short-term trends.

JPY: Under pressures

The JPY is expected to remain under pressure in the near term due to a mix of domestic and global factors. The BoJ’s cautious stance, as reflected in the October Summary of Opinions, indicates that monetary tightening will proceed gradually. While the BoJ has signaled its readiness to raise rates if economic and price forecasts are met, there is no immediate urgency to act in December, with market expectations leaning toward a potential hike in January. Adding to this, political uncertainty under Prime Minister Shigeru Ishiba’s minority government further reduces the likelihood of bold policy changes in the short term.

The re-election of President Trump has intensified downward pressure on the JPY, which has already weakened significantly. Japanese policymakers have expressed concerns over excessive FX movements, particularly with USD/JPY towards the critical 155 level. While direct intervention is unlikely at this stage, a rapid move beyond 158 could prompt stronger verbal interventions or even action from the BoJ. Governor Ueda has warned that further yen depreciation risks reigniting inflationary pressures, aligning with the BoJ’s efforts to maintain inflation control.

In summary, the JPY is likely to remain under bearish pressure in the immediate term, driven by yield differentials and political challenges. However, caution is warranted as verbal interventions from Japanese authorities could influence market sentiment. The yen’s trajectory remains highly sensitive to both domestic policy signals and external developments in the near term.

USD/JPY 4H Chart

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