USD/JPY trades in a tight range as interest rate differentials, trade talks drive sentiment
- USD/JPY remains supported above 144.00 as US-China trade talks remain in focus.
- Bank of Japan Governor Kazuo Ueda’s hawkish tilt limits Yen weakness.
- The US Dollar steadies ahead of Wednesday’s US inflation data, which could contribute to Fed rate bets.
The Japanese Yen (JPY) is steadying against the US Dollar (USD) on Tuesday, with the USD/JPY pair hovering above the 144.00 level in relatively muted trade.
With markets focused on US–China trade negotiations and broader risk sentiment, USD/JPY remains sensitive to shifts in both geopolitical developments and interest rate expectations.
While the trade talks in London appear to be making progress, a more hawkish tone from the Bank of Japan (BoJ) has helped limit further downside in the Yen.
On Tuesday, BoJ Governor Kazuo Ueda stated that inflation still has some way to go to sustainably reach the 2% target. Ueda stated that “We will raise interest rates if we have enough confidence that underlying inflation nears 2% or moves around 2%.”
Market participants interpreted these remarks as reducing the likelihood of an imminent interest-rate hike.
On Wednesday, the next fundamental catalyst on the US economic calendar will be the release of US Consumer Price Index (CPI) data for May. Expectations are for headline US CPI to rise by 0.2% on a monthly basis. Inflation is expected to increase to 2.5% YoY, from 2.3% in April.
The core CPI, which excludes food and energy prices, is expected to show a 0.3% MoM increase in May compared to 0.2% in April. The YoY figure is also estimated to reflect a 0.1% increase, rising to 2.9% compared to 2.8% in April.
A hotter-than-expected print could reignite USD strength by reinforcing expectations for a Federal Reserve (Fed) rate hold, while a softer number may weigh on the Greenback.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.08% | 0.18% | 0.12% | -0.20% | -0.20% | -0.09% | -0.04% | |
| EUR | 0.08% | 0.27% | 0.20% | -0.09% | -0.11% | -0.01% | 0.05% | |
| GBP | -0.18% | -0.27% | -0.16% | -0.36% | -0.37% | -0.27% | -0.21% | |
| JPY | -0.12% | -0.20% | 0.16% | -0.29% | -0.35% | -0.29% | -0.24% | |
| CAD | 0.20% | 0.09% | 0.36% | 0.29% | -0.01% | 0.09% | 0.16% | |
| AUD | 0.20% | 0.11% | 0.37% | 0.35% | 0.01% | 0.12% | 0.16% | |
| NZD | 0.09% | 0.00% | 0.27% | 0.29% | -0.09% | -0.12% | 0.06% | |
| CHF | 0.04% | -0.05% | 0.21% | 0.24% | -0.16% | -0.16% | -0.06% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Author
Tammy Da Costa, CFTe®
FXStreet
Tammy is an economist and market analyst with a deep passion for financial markets, particularly commodities and geopolitics.
