- US inflation figures shook the strength of expectations for the future of a strong and continuous tightening of the US Federal Reserve.
- The continuous rise in US interest rates was supportive of the USD/JPY currency pair in moving towards its highest in 25 years.
- Yesterday it collapsed to the support level 132.00 starting from the resistance 135.30 in one trading session.
- The price of the dollar yen is stable around the level of 132.60 at the time of writing the analysis.
Currently, economists are divided over whether the slowdown in US consumer price growth for July means the Federal Reserve could ease its aggressive program to raise US interest rates, making 75 basis points less specific. Labor Department data on Wednesday showed that the US Consumer Price Index rose 8.5% from a year earlier, cooling off June's 9.1% advance which was the largest in four decades. Prices were unchanged from the previous month.
Markets are now pricing in the possibility of a 50 basis point increase in September instead of the 75 basis point, and less than 100 basis point gains over the next two meetings. Commenting on this, Derek Holt, an economist at Scotiabank, said: “Whether it's 50 or 75 in September, it will probably go lower.” on wage-driven catalysts for future inflation versus the latest CPI print, but it's too early to judge the September move."
The US central bank's FOMC raised its benchmark rate by three-quarters of a percentage point in July for the second month in a row, marking the largest consecutive increases in more than a generation to once again tame inflation. 2% target. The next Federal Open Market Committee will meet on September 20-21.
Fed Chairman Jerome Powell told reporters after the July 27 decision that officials could raise rates by the same amount at the next meeting, depending on readings from the economy now and then. It will slow at some point in the future. Federal Reserve officials who have spoken out in recent days have effectively countered a narrative in financial markets that policy makers are envisioning a shift away from tightening amid evidence of a turnaround in the US economy, saying that bringing price growth back to the 2% target remains a priority.
Core inflation, excluding volatile food and energy, rose 0.3% from June and 5.9% from a year ago. While these numbers were better than expected, Fed officials are likely to be concerned about how far away they are from the 2% inflation target.
USD/JPY Technical Outlook:
On the daily chart below, the price of the USD/JPY currency pair is at the beginning of the phase of breaking the general upward trend. The direction may change completely in case it moves towards the 130.00 psychological support level. I still prefer to buy the dollar yen from every descending level. Over the same time period, a move towards the resistance levels 133.80 and 135.00 will be important to the extent to which the bulls control the trend again. The dollar-yen pair will be affected today by the announcement of a new round of US inflation, the producer price index and the number of weekly jobless claims.