USD/JPY rises to 157.70 as Fed’s hawkish narrative improves US Dollar’s appeal

The USD/JPY pair jumps to 157.70 in Monday’s European session as the US Dollar (USD) holds strength due to a hawkish outlook on interest rates by Federal Reserve’s (Fed) officials. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, clings to gains near 105.55.

Fed policymakers continue to argue in favor of lowering interest rates only once this year amid fears of reacceleration in price pressures. Officials worry that progress in the disinflation process could remain slow due to strong labor market conditions. United States (US) consumer inflation cooled more than expected in May after an expected decline in April.

Though Fed policymakers want more soft inflation data to get convinced for rate cuts, the confidence of financial markets has increased significantly for early rate cuts. The CME FedWatch tool shows high possibility of two rate cuts this year and policymakers will return to policy-normalization from the September meeting.

This week, investors will focus on the US monthly Retail Sales data for May to get more cues on the interest rate outlook. The Retail Sales data, which is a leading indicator of consumer spending, is expected to have increased by 0.3% after remaining stagnant in April.

Meanwhile, the Japanese Yen weakens as taper tantrum plans have been postponed by the Bank of Japan (BoJ) to the July’s meeting. The BoJ didn’t rule out expectations of more rate hikes in July as weak Japanese Yen has boosted import prices, which is driving inflation higher.