Japanese Yen strengthens against US Dollar due to firm Fed rate cut bets

The Japanese Yen (JPY) rallies against the US Dollar (USD) in Wednesday’s European session. The USD/JPY pair weakens to 156.00 due to a sharp sell-off in the US Dollar, which is prompted by a highly-likely rate-cut decision by the Federal Reserve (Fed) in its September policy.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, tumbles to near 103.70. 10-year US Treasury yields have declined slightly to 4.16%.

Signs of progress in disinflation and cooling labor conditions drive firm Fed rate-cut prospects for September. Recent consumer inflation readings for June showed that price pressures decelerated at a faster-than-expected pace. The monthly headline inflation dipped for the first time in more than four years. On the labor market front, Unemployment Rate rose to 4.1%.

Meanwhile, the confidence of Fed officials that inflation has returned to the path of 2% has improved. Fed Chair Jerome Powell acknowledged at the Economic Club of Washington on Monday that recent inflation data has added to confidence that inflation is oncourse to return to the desired rate of 2%. However, he mentioned that policymakers need to gain more confidence before considering rate cuts.

This week, various Fed speakers lined up to provide guidance on inflation and interest rates.

On the Tokyo front, investors await the National Consumer Price Index (CPI) report for June, which will be published on Thursday. The inflation data will provide cues about whether the Bank of Japan (BoJ) will tighten its monetary policy further in its upcoming meeting on July 31.

Japan’s annual National CPI ex. Fresh Food is estimated to have accelerated to 2.7% from May’s reading of 2.5%.