There has not (yet) been a strong reaction in the market to the news that Biden is stepping back from his re-election bid. Both the US yield curve and EUR/USD are trading close to where they were on Friday afternoon. While US politics could bring plenty of volatility this summer, today it is the Japanese Yen (JPY) which is again stealing the limelight in the FX market, Rabobank’s senior FX strategist Jane Foley notes.

JPY is the best G10 performer

“The JPY is the best performing G10 currency on a 1-day view. It is also the best G10 performer on a 5-day view and in the month to date as speculators reduce their short positions. That said, the 100-day sma provided decent support last week. Insofar as the Trump trade implies a stronger USD, US politics will play into the outlook for USD/JPY this year.”

“It is still unclear whether the BoJ will see the justification for a move next week. An absence of hawkish signals from the BoJ on July 31 could yet result in another pop higher in USD/JPY, particularly if Trump’s position on US opinion polls holds firm.”

“While there is plenty of scope for near-term volatility in USD/JPY, we see improved chances of the JPY winning back ground later in the year based on the assumption that a recovery in Japanese real wages will allow for a more hawkish BoJ. We retain a 6-month forecast of USD/JPY152.00.”