Fed's new chief promises to fight inflation — buy the surging dollar against the sliding Japanese yen
The US dollar is surging in value because the new head of the Federal Reserve hinted that interest rates might go up to fight inflation. At the same time, the Japanese yen has dropped to its weakest level against the dollar in nearly two years.
Idea
When US interest rates are expected to rise, global investors tend to park their money in the US dollar to earn those higher returns, pushing the dollar's value up. Meanwhile, Japan's currency is already weakening and just hit a two-year low. This widening gap between a strengthening dollar and a weakening yen creates a strong tailwind for the exchange rate to keep climbing. As long as the Fed stays tough on inflation and Japan keeps its rates low, betting on the dollar against the yen remains a high-probability move.