This week, the US consumer price index and producer price index continued to show a slowdown in inflation. Both of these slowed down more than the market expected, and panicked dollar-selling reactions spread, especially when the consumer price index was announced. The dollar/yen was pushed further down after erasing the gains that followed last week’s US employment data. However, the decline after yesterday’s release of the US Producer Price Index was limited. The price is slowly coming back underfoot. The dollar/yen fell below the 135 yen level to around 132 yen, and then returned to the 133 yen level after declining in the high 131 yen range.
However, there seems to be no change in the FOMC’s aggressive stance of raising interest rates. CME FedWatch went from favoring a 0.75% rate hike after the US jobs report to favoring a 0.50% rate hike after the US CPI announcement. At present, the 0.50% rate hike is factored in at 62.5% and the 0.75% rate hike at 37.5%. Despite the slowdown in inflation, just under 40% still lean toward raising interest rates by 0.75%. Fed officials have not made any remarks to ease their aggressive stance of raising interest rates. Fed Chairman Jerome Powell’s speech at the Jackson Hole meeting in late August is about to be awaited.
Due to the weekend ahead, it is easy to make short-term position adjustments. Given that the dollar/yen pair is reluctant to move down after a series of downward pressures, there seems to be some room for a rebound. The weight around 133.50 will be tested.
Since there is still a possibility that the Fed will take an aggressive route, we do not think it will continue, although the USD is being sold. Since it is the weekend today, it is assumed that the USD that has been sold so far will be easily repurchased.