The trend of the strengthening US dollar that began at the start of the year accelerated after the release of the US Consumer Price Index (CPI) yesterday, briefly reaching 146.41 yen. However, it pulled back to pre-CPI levels and experienced a strengthening of the yen in Tokyo on the morning of the 12th, reaching 144.85 yen.
However, the medium-term trend still remains upward. Japan’s early release of negative interest rates has receded following the Noto Peninsula earthquake, and the expected timing for the release has been pushed back to the April meeting following the central focus on the spring labor-management negotiations. Reports suggesting that the Bank of Japan’s inflation forecast for fiscal year 2024 will be downwardly revised also provide grounds for yen selling.
Expectations for trading based on the interest rate differential between Japan and the US are expected to continue, supporting a solid movement for the USD/JPY pair.
The US Producer Price Index (PPI) for December, to be released , is expected to show a year-on-year increase of +1.3%, stronger than the +0.9% in November. Following the strong CPI data yesterday, a robust PPI report could provide support for the US dollar and, consequently, the USD/JPY pair.
However, it remains uncertain whether there will be enough momentum to retest yesterday’s high levels before the weekend. Considering the previous upward movement and the potential for adjustments, a range-bound trading pattern between the mid-144 yen and mid-145 yen levels is expected.
EUR/USD continues to trade in the mid-1.09 range, with no significant momentum to push beyond the major level, suggesting the likelihood of continued range-bound trading.
GBP/USD reached its highest level since the start of 2024, rising to 1.2785 in the morning. Expectations that the early rate cut may be deferred depending on the results of next week’s UK Consumer Price Index have contributed to the relatively strong performance of the pound.
EUR/JPY remains in the mid-159 yen range. The robust performance of the Nikkei 225 index is providing support for cross-yen pairs. However, having reached the 160 yen level yesterday, there may be a sense of consolidation in the near term, and a calmer movement is expected to follow.
The US CPI data released yesterday, while slightly above expectations, did not show significant deviations, resulting in limited market reactions. As a result, the US dollar has not shown a clear direction.
Today, we have the US Producer Price Index (PPI) scheduled for release. While it may have a weaker impact compared to the CPI, it is still an important US inflation indicator, and any significant deviation from expectations could influence market movements. Therefore, it is worth keeping an eye on it.”
