Japanese Yen treads water around 159.00 with US PCE Inflation on tap

USD/JPY wavers around 159.00 after pulling back from 159.45 highs on Tuesday.
Most USD crosses are trading within previous ranges, as investors brace for US PCE inflation data.
Higher hopes of BoJ tightening are providing some support to the Yen.

Guillermo Alcala FXStreet

The Japanese Yen (JPY) ticks higher against the US Dollar (USD) on Wednesday but keeps looking for direction, as investors bide their time, awaiting an array of key US macroeconomic releases due later on the day. The USD/JPY chart pulled back from Tuesday’s high at 159.45, but downside attempts remain contained above 158.40 so far.

The main focus during the US session will be July’s Personal Consumption Expenditures (PCE) Price Index release. Brown Brothers Harriman’s Elias Haddad expects the report to “echo the soft July CPI and retail sales data, giving the Fed room to stay on hold.” Consensus looks for “headline PCE… rising 0.1% m/m vs. -0.1% in June to be 3.6% y/y vs 3.7% in June,” while “core PCE is expected to rise 0.2% m/m vs. 0.1% in June and remain at 3.3% y/y for a second straight month.”

In parallel, BBH notes that “real personal spending is expected at 0.0% m/m vs. 0.4% in June,” reinforcing the picture of moderating demand that underpins their view of a steady policy stance.

Apart from that, the first estimate of the US second quarter's Gross Domestic Product (GDP) is expected to confirm preliminary data showing that economic growth slowed down to a 1.5% annualized rate, from 2.1% in the previous quarter.

Yen firm as markets lean toward BoJ hike

In Japan, all eyes are on the advanced Tokyo Consumer Price Index (CPI) release, which will be carefully watched to confirm market expectations of a Bank of Japan (BoJ) rate hike in September.

Analysts at MUFG note that the Yen is trading firmer against most G10 peers this morning, except the Aussie, as “market pricing indicates a continued gradual strengthening of expectations that the BoJ will hike in September.” That view is reinforced by former BoJ policy board member Seiji Adachi, who, in an interview with Bloomberg, “stated that the BoJ will likely raise rates in September and again in January.”

Regarding the US Federal Reserve (Fed), MUFG argues that “if there is no strong steer by Warsh on a hike in September (which seems likely), we would likely see front-end rates soften a little in the US and coupled with strong expectations of a BoJ rate hike could provide some impetus for a further decline in USD/JPY.”

(This story was corrected on August 26 at 11:52 GMT to say, in the first paragraph, that Tuesday's high was at 159.45, not 1.5945.)

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.

Economic Indicator

Personal Consumption Expenditures - Price Index (YoY)

The Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The YoY reading compares prices in the reference month to a year earlier. Price changes may cause consumers to switch from buying one good to another and the PCE Deflator can account for such substitutions. This makes it the preferred measure of inflation for the Federal Reserve. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

AUD/USD bulls regain control above 0.6950 amid USD retreat

AUD/USD regains traction and extends the previous day's bounce from the weekly low, aiming for 0.7000 in Asia on Friday. The overnight pullback in US bond yields keeps the US Dollar below an 18-month high, which in turn offers some support to the pair. Meanwhile, hawkish RBA expectations also keep the major underpinned.

USD/JPY holds gains near 158.00 after Japan's weak Household Spending data

USD/JPY clings to gains around 158.00 after data showed on Friday that Japan's Household Spending fell for the ninth straight month, undermining the Japanese Yen. Meanwhile, the US Dollar remains depressed as the overnight fall in US bond yields counters a hawkish Fed and geopolitical uncertainties, could cap any downside in the pair.

Gold remains range-bound below $4,200

Gold has given up some ground after an initial bullish attempt to reach weekly highs, returning to below the $4,200 mark per troy ounce on Friday. The US Dollar’s strong upside momentum, combined with rising US Treasury yields across the curve, seems to keep further gains in the yellow metal under scrutiny.

Has Bitcoin really escaped the macro forces it was built to fight?

Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?

The Euro is not the sick man of Europe. France's bond market is

EUR/USD remains under pressure, near the 17-month low of 1.1161 reached on Monday. The pair has lost more than 7% since its yearly peak, as concerns over France's public finances increasingly weigh on the single currency. But behind the weakness of the Euro (EUR), the problem does not necessarily lie with the European economy as a whole.