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Dollar steadies before inflation test; Yen unaffected by Tokyo CPI

May 31, 2024

Key points:

  • U.S. economy grew at a 1.3% annualised rate from January through March, down from an estimated 1.6%.
  • Market participants eye the upcoming PCE inflation report for further direction on U.S. interest rates.

On Friday, the dollar was recovering after a challenging session against other major currencies. This reaction followed a downward revision to U.S. GDP for the first quarter, suggesting potential for rate cuts later this year. Investors are now turning their attention to upcoming inflation data for further clues on monetary policy.

Recent data revealed that the U.S. economy expanded at a 1.3% annualised rate in the first quarter of the year. This figure is a revision from an earlier estimate of 1.6%, mainly due to lower consumer spending. New York Fed President John Williams indicated that current monetary policies are effectively reducing inflation pressures.

U.S. Treasury yields, which had recently driven the dollar to its highest level since May 14 at 105.17, fell following the revised GDP data. Consequently, the dollar index (DXY), which measures the currency against six major peers, consolidated around 104.76 after dipping to 104.63 overnight.

Focus shifts to PCE price index

Traders are now focused on the release of the Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation. Despite an earlier dip in consumer price inflation in May, which had bolstered rate cut expectations and weakened the dollar, recent data indicating persistent inflation has tempered those expectations.

Yen holds steady as Tokyo CPI fuels rate hike speculation

Chart showing USD/JPY pair trading at 156.668 with a trend of -0.58% on a 4-hour timeframe. The image includes moving averages and MACD indicators, reflecting a gradual decline in the pair's value, facing resistance at 157.023. Despite data indicating an acceleration in Tokyo core consumer prices, the yen remained stable against the dollar. This rise in Tokyo CPI, a leading indicator for nationwide figures, sustains market expectations for a potential interest rate hike by Japan's central bank this year.

Picture: USDJPY trading at 156.668 as seen on the VT Markets app.

Against the dollar, the yen remained stable despite data showing an acceleration in Tokyo core consumer prices. This increase in Tokyo CPI, a leading indicator for nationwide figures, kept market expectations alive for a potential interest rate hike by Japan’s central bank this year.

After a brief dip, the yen held steady at 156.77 per dollar, staying above Wednesday’s four-week low of 157.715. The yen has been approaching its 34-year low of 160.245, a level that previously prompted dollar-selling interventions by Tokyo.

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