The Japanese yen lost some of its earlier gains against the US dollar on Wednesday, following US CPI data that was in line with expectations and didn’t lead to any significant market shifts. Currently, the USD/JPY pair is around 159.20, having dropped to an intraday low of 158.58.
The composite consumer price index (CPI) increased by 0.1% in July, reversing a 0.4% drop in June. Year-on-year, inflation nudged down from 3.5% to 3.4%. Meanwhile, core CPI saw a 0.2% rise month-over-month after remaining unchanged in June, which slowed the annual rate slightly from 2.6% to 2.5%.
This announcement led traders to further reduce their expectations for a Federal Reserve rate hike, already tempered by disappointing July nonfarm payroll (NFP) data. The chances of a September rate increase have dipped to 38%, down from 44% prior to the CPI release, as indicated by the CME FedWatch tool.
US Treasury yields have decreased a bit across the board, while the dollar has rebounded slightly after the post-CPI downturn. The dollar index (DXY), which measures the currency against a basket of six major currencies, is currently at about 99.82, recovering from an intraday low of 99.61.
The US dollar remains fairly stable within its recent trading range. Although the CPI data has diminished the likelihood of a September rate hike, the broader picture hasn’t drastically changed. Inflation continues to be a concern, and rising oil prices might complicate the Fed’s efforts to achieve that 2% target.
On another note, the lack of progress toward peace in the Middle East is lending some support to the dollar. According to Reuters, a senior source from Iran indicated there are no current discussions with the United States about extending the ceasefire.
As for the yen, it has already given up nearly half the gains from the recent joint US-Japan intervention. Officials from both nations have signaled a willingness to take action again if needed, which may deter traders from driving USD/JPY above the significant 160 yen mark.
Now, all eyes are on the upcoming producer price index (PPI) data for both Japan and the United States, set to be released on Thursday.
