The US dollar fell strongly after US inflation figures came in below expectations and eased pressure on the US Federal Reserve to raise interest rates beyond the expected hike in July. In the case of the USD/JPY currency pair, it collapsed amid strong selling operations even before announcing the weaker US inflation figures, towards the support level of 138.12. This was its lowest in nearly two months, and settled around the level of 138.35 at the time of writing.
Overall, the headlines from the US Census Bureau were indicative of a rapid slowdown in US inflationary pressures, although slower declines in core inflation mean the Fed will not be dissuaded from raising US interest rates on at least one other occasion. Commenting on the decline in US inflation rates. “This decline was supported by fundamental effects, as the strong year-old increase pulled out of the calculation,” says Kathryn Judge, economist at CIBC Capital Markets.
Interacting with the data results also lowered US bond yields in the realization that the Federal Reserve could start to feel that it has inflation under control. Encouragingly for the US Federal Reserve, there was relief in policymakers' preferred measure of tracking essential services such as rent for shelter prices, which is a better measure of demand-related underlying price pressures. That measure showed a pace of -0.01% m/m in June, a sign that previous rate hikes are beginning to calm inflation.
The weakness of the US dollar comes after the US consumer price index. Commenting on the reaction, Chris Turner, an analyst at ING Bank N.V, says: “The benign CPI could open a bearish movement for the dollar.” On the other hand, with the yield differentials between the United States and Japan narrowing further, the Japanese yen was in the driving seat in the forex market, as the dollar / yen fell below the psychological area of 140.00, confirming the separation of the Japanese currency from the performance of stocks, which was on Tuesday.
Dollar expectations against the Japanese yen today:
- According to the performance on the daily chart below, there is a noticeable shift in the general direction of the USD/JPY currency pair.
- The move towards and below the support level 138.00 will be sufficient to push the technical indicators towards strong oversold levels.
- We must think below it to return to buying the currency pair, as it is still the clear discrepancy between the future of the Japanese central bank's policy and the policy of the Federal Reserve Bank in favor of the strength of the US dollar in the end.
On the other hand, and for the same period of time, the movement of the USD/JPY currency pair above the resistance 140.35 will be important for the bulls to control the trend again. I still prefer to buy the currency pair from every downward level.
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