Yen to USD: Dollar Strengthens Ahead of US Inflation Data

The yen dipped below the crucial 145 per dollar level on Friday, although concerns of intervention by Japanese authorities limited its decline. Simultaneously, the dollar demonstrated strength across the board in anticipation of US inflation data.

The focal point for FX markets today is the release of the US personal consumption expenditure price index, scheduled for 0830 EST (1230 GMT). This crucial data will provide the latest insights into whether the world’s largest economy is experiencing a slowdown in prices.

On Thursday, robust US economic data indicated that the Federal Reserve has room to raise interest rates further if inflationary pressures demand it. Consequently, US benchmark 10-year yields saw their most significant increase since late March, rising by 14 basis points. Following suit, the dollar index climbed by 0.35% on Thursday, gaining ground against the euro, which declined by 0.45%.

Euro and Pound Stable, Markets Await PCE Data

In early European trading on Friday, the markets remained stable, with the euro unchanged at $1.0857, near a one-week low. Similarly, the British pound experienced little change, hovering at $1.2617, slightly above the two-week low seen the previous day.

Simon Harvey, Head of FX Analysis at Monex Europe, commented on the recent market dynamics, noting the positive surprises in US data and underwhelming data from other parts of the world. He highlighted that this may align with the Federal Reserve’s messaging, indicating the possibility of a second interest rate hike in the fourth quarter.

While Thursday’s data revised the US first-quarter GDP figures, it remains a backwards-looking indicator. Therefore, the focus for the markets lies in understanding how consumers are currently faring, a question that the forthcoming PCE data will shed light on.

Dollars into Yen: Volatility Raises Intervention Concerns

Amidst the USD’s gains, it briefly reached to 145.07 Yen during Asian trade on Friday, the highest level in seven months. This price level is significant as it prompted Japanese authorities to intervene and support their currency last autumn. However, the dollar was unable to sustain those gains and eventually settled flat for the day at 144.88 yen.

Japanese Finance Minister Shunichi Suzuki cautioned against excessive yen depreciation on Friday. That way, he joined the chorus of government ministers and officials expressing similar concerns. However, Suzuki refrained from using stronger language such as being “deeply concerned” or expressing an intention to take “decisive steps”.

Eurozone Inflation Data and Limited Surprises

Analysts noted that the measures implemented last year to support the Yen to USD conversion have been effective. Consequently, market participants are now contemplating the rationale of pushing the dollar/yen pair higher, considering the potential risk of a significant overnight loss.

Additionally, data released on Friday revealed that core inflation in Tokyo rose in June, marking the 13th consecutive month that it has remained above the Bank of Japan’s 2% target.