USD/JPY Anticipates Further Losses Below 137.50 As US Vice President Biden Exercises His 14th Amendment Right

During the Asian session, the USD/JPY pair retraced to a level near 137.50, a key support level. As a delay in the US debt-ceiling increase wreaks havoc on global markets, it is anticipated that the asset will suffer further losses below the mentioned support.

S&P500 futures have recouped some of the losses posted in early Asia, but the market sentiment is still quite risk-averse as the US Treasury approaches a default situation with each passing day. US President Joe Biden canceled the current bipartisan agreement with Kevin McCarthy of the House of Representatives, citing the terms as unacceptable, and offered to prevent Democrats from gaining re-election in 2024.

The market anticipates that Vice President Biden will exercise his 14th Amendment right, if Republicans maintain their current partisan conditions, in order to prevent the United States from defaulting on its debt obligations, which could cause interest rate spikes and extreme market volatility. However, the White House is uncertain as to whether or not they have sufficient time to implement the unproven strategy.

The US Dollar Index (DXY) is seeking support near 103.00, but the downside appears to be favored as the Federal Reserve (Fed) is expected to maintain interest rates at its monetary policy meeting in June. In the meantime, 10-year US Treasury yields have been under duress as they attempt to break above 3.7%.

On the front of the Japanese yen, the acceleration of inflationary pressures indicates that Japan's economic recovery remains intact. The national headline Consumer Price Index (CPI) increased to 3.5% from 3.2%, when the market had anticipated a decline to 2.5%. The core CPI, which excludes food and energy prices, accelerated to 4.1% versus 3.4% expected and 3.8% previously reported. To maintain inflation above 2%, the Bank of Japan (BoJ) will maintain its dovish interest rate policy stance.