The USDJPY currency pair traded sideways most of today as investors remained focused on the Jackson Hole Symposium, especially the Fed Chair’s comments. Still, the dollar started advancing against most of its peers, including the Japanese yen, ahead of the speech, but not by much.
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The US dollar was marginally higher than most of its peers, with minimal gains of 0 to 20 pips against all major currencies. Still, the message has been clear from other recent Fed speakers who have cautioned that it is too early for the Fed to start cutting rates.
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Analysts now expect the Fed to start cutting rates in May 2024 after keeping them steady for a while. Most investors are also not ruling out a further rate hike if inflation in the US reverses course and edges higher due to the lack of rate hikes.
Earlier today, the Japanese core inflation data was released, and the print came in at 2.8%, missing analysts' estimates set at 2.9% and falling from the previous figure of 3.0%. The lower inflation figures weakened the yen as the Bank of Japan (BoJ) is likely to keep rates in negative territory if inflation falls.
On the other hand, the Fed hiked interest rates by 25 basis points at its July meeting, and many are counting on the central bank leaving interest rates unchanged at its September meeting. However, recent macroeconomic releases from the US indicate that the Fed could still have room for one more rate hike.
According to the CME Group FedWatch Tool, investors see a more than 40% probability of the Fed lifting the interest rate one more time by 25 bps before the end of the year. The recent positive GDP and inflation data from the US have stocked hopes for one more rate hike.
The US's real Gross Domestic Product (GDP) expanded at an annualised rate of 2.4% in the second quarter, compared to the market expectation of 1.8%. Furthermore, the annual Consumer Price Index (CPI) inflation rose to 3.2% in July from 3% in June.
Therefore, as investors waited patiently for the Fed Chair’s speech, we could see a massive rally in the greenback after the fact.
The USDJPY price chart.
The USDJPY currency pair was trading up 11.2 pips (0.08%), mainly trading sideways.
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