USD/JPY surges to 135.00 neighbourhood amid upbeat NFP-inspired broad-based USD strength

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  • USD/JPY rallies to over a one-week high in reaction to stellar US employment details.
  • The US economy added 528K jobs in July and the unemployment rate fell to 3.5%.
  • The risk-off impulse fails to benefit the safe-haven JPY or hinder the strong move up.

The USD/JPY pair catches aggressive bids during the early North American session and jumps to over a one-week high, around the 134.85 region in reaction to the stellar US jobs report.

The headline NFP print smashed consensus estimates and showed that the US economy added a whopping 528K jobs in July, more than double the 250K anticipated. Adding to this, the previous month’s reading was also revised higher from 372K to 398K. Furthermore, the unemployment rate surprisingly fell to a pre-pandemic low of 3.5% from 3.6% in June.

Against the backdrop of more hawkish comments by several Fed officials this week, the upbeat employment details revive bets for a larger interest rate hike at the September FOMC policy meeting. In fact, the odds for a 75 bps hike have jumped to 61% from the 40% ahead of the release, which triggers a sharp spike in the US Treasury bond yields.

This, in turn, results in the widening of the US-Japan rate differential, which, along with a strong pickup in the US dollar demand, provides a solid boost to the USD/JPY pair. The combination of supporting factors helps offset the risk-off impulse, which does little to benefit the safe-haven Japanese yen or cap gains for the major.

With the latest leg up, spot prices confirm a near-term breakout through the 134.50-134.55 intermediate hurdle, suggesting that any pullback could be seen as a buying opportunity. Some follow-through buying beyond the 135.00 psychological mark would reaffirm the positive outlook and pave the way for a further appreciating move for the USD/JPY pair.

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