USD/JPY declines from four-week high near 134.00 after US CPI fail
|- USD/JPY falls from four-week high on Wednesday after US CPI misses expectations.
- The fundamental backdrop still supports prospects for additional near-term gains.
- US CPI comes out lower than estimated, weighing on the US Dollar and giving a lift to the pair.
The USD/JPY pair falls from a four-week high on Wednesday after the release of US CPI showed an unexpected slowdown in inflation which increased expectations the Federal Reserve might put a brake on its aggressive rate-hiking agenda at its next meeting in May.
The US Dollar (USD) languishes near the weekly low amid growing acceptance that the Federal Reserve (Fed) is nearing the end of its rate-hiking cycle and this acts as a headwind for the USD/JPY pair. Apart from this, looming recession risks seem to benefit the safe-haven Japanese Yen (JPY) and further contribute to keeping a lid on the major. In fact, the International Monetary Fund (IMF) on Tuesday trimmed its 2023 global growth outlook, citing the impact of higher interest rates.
That said, the Bank of Japan's (BoJ) dovish near-term outlook continues to undermine the JPY and should help limit losses for the USD/JPY pair. It is worth recalling that the new BoJ Governor Kazuo Ueda said on Monday it was appropriate to maintain the ultra-loose stance as inflation has yet to hit 2% as a trend. In contrast, the current market pricing indicates a greater chance of a 25 bps lift-off at the next FOMC meeting in May and the bets were lifted by the upbeat US NFP report.
The US Consumer Prise Index in March came out at 0.1% MoM when a 0.3% rise had been forecast by economists. YoY the Index showed a rise of 5.0% when 5.2% had been expected from a previous 6.0% result. The data further reduced bets the Federal Reserve will hike rates at its nexrt policy meeting, which weighed on the US Dollar. Next on the data docket for Wednesday are the FOMC minutes, which will be looked upon for clues about the future rate-hike path and play a key role in influencing the near-term USD price dynamics.
From a technical perspective, acceptance above 50 and 100-day Simple Moving Averages (SMAs) could be seen as a fresh trigger for bulls, suggesting that the path of least resistance for the USD/JPY pair is to the upside. Hence, any meaningful corrective pullback is more likely to attract fresh buying at lower levels and remain limited, at least for the time being.
Technical levels to watch
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