Yen attempts to bounce up from 159.45 lows ahead of the US inflation release

Yen hesitates below 159.00 with all eyes on US inflation figures.
US CPI data is expected to show easing inflationary pressures, which might cool hopes of immediate Fed tightening.
A hawkishly leaning BoJ Summary of Opinions has provided some support to the Yen.

Guillermo Alcala FXStreet

The Japanese Yen (JPY) is one of the best performers in an unusually low-volatility market on Wednesday, picking up to levels near 159.00 against the US Dollar, after hitting support in the 159.45 area. USD/JPY dips, however, are finding buyers, with the focus on the US Consumer Price Index (CPI) report, due later on the day.

The market consensus anticipates a moderate slowdown in July’s consumer prices, with the yearly CPI growth easing to a 3.4% rate from 3.5% in June. Likewise, the core CPI is seen slowing down to a 2.5% year-on-year reading from the 2.6% rate posted in the previous month.

US CPI data set to determine the path for USD crosses

Brown Brothers Harriman’s Elias Haddad notes that the US CPI reading is set to be “a key swing factor for Fed funds rate expectations and set the tone across rates, currencies, and broader risk sentiment.” He points out that Fed funds futures “currently price in 50% odds of a 25bps hike in September” and that “a soft US CPI would strengthen the case for a dovish repricing in Fed hike expectations and further undermine USD while lifting risk assets.”

By contrast, “a hot US CPI will likely deliver a knee-jerk USD bounce via higher front-end yields.” However, he cautions that “with Fed policy already restrictive (assuming a neutral rate of 3.00%), the scope for a material hawkish repricing looks limited, which is a USD headwind.”

The Yen, on the other hand, is drawing some support from the hawkishly leaning Bank of Japan's (BoJ) Summary of Opinions released earlier this week. The bank's monetary policy committee showed increasing concern about upside risks to inflation, opening the door to a quarter-point interest rate hike in September, with one committee member suggesting a possible acceleration in the bank's monetary tightening pace.

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Economic Indicator

Consumer Price Index ex Food & Energy (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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