TITLE: USD/JPY pops back above 114.00 in advance of Fed announcement, aided by strong US data duo

• USD/JPY has risen back above 114.00 from earlier lows aided by strong US data.
• The upcoming Fed meeting will ultimately determine the direction of FX markets on Wednesday.

While the upcoming Fed monetary policy announcement at 1800GMT and follow up press conference with Fed Chairman Jerome Powell from 1830GMT will ultimately dictate the lay of the land for FX markets when all is said and done on Wednesday, USD/JPY has tentatively managed to reclaim the 114.00 level in recent trade, as the currency pair tracks a modest move higher in US yields in response to a duo of strong US data releases earlier in the session. As things stand, the pair is not even 0.1% higher on the day, but it has reversed a more respectable 0.3% from earlier lows when it grazed 113.70. At 114.00, USD/JPY is pretty much bang in the middle of the roughly 113.50-114.50 range that has persisted for roughly the last three weeks.

Strong US data support USD/JPY ahead of the Fed

Notable upticks were seen on the chart at 1215GMT, when ADP released their national employment change estimate for October, which was notably stronger than the 400K median economist forecast at 571K thus adding some upside risk to Friday’s official payroll number (though analysts note the link between ADP and NFP in recent months has been hit and miss), and then again at 1400GMT, when the Institute of Supply Management released their October Services PMI survey, which rocketed to a record high of 66.7.

Anthony Nieves, Chair of the Institute for Supply Management, said in the report that “in October, strong growth continued for the services sector, which has expanded for all but two of the last 141 months”, though he cautioned that “ongoing challenges — including supply chain disruptions and shortages of labor and materials — are constraining capacity and impacting overall business conditions”. Overall, Wednesday’s economic data suggests the US economy is in good health at the start of Q4, with major contraint being the persistance of well documented, ongoing supply chain disruptions.