USD Back Up After Initial Drop, JPY Back Down

The USD took a brief dive after the softer consumer inflation numbers today, but it has recuperated and USD/JPY is trading above 144 now

Skerdian Meta•Thursday, August 10, 2023•1 min read

Everyone was looking at the US Consumer Price Index (CPI) report today and it closely aligned with market expectations, as both the monthly core and headline readings showed an increase of +0.2% MoM, in line with the consensus. However, looking deeper into the data, both figures were slightly softer at +0.16% and +0.17% when not rounded, and the year-over-year figures fell came a tick below the estimated levels.

In the immediate aftermath, there was a decline in the US dollar’s value, with the USD/JPY currency pair dropping by 50 pips to reach a session low of 143.31. Similar, albeit mostly smaller, reactions were observed in other currency pairs.

Following the initial significant movement and subsequent retracement, there appears to be a resurgence of US dollar selling activity, especially beyond the USD/JPY pair (which tends to be positively linked with risk sentiment). This pair has reversed and is trading around 120 pips higher off the lows now. A notable example is the AUD/USD pair, which is once again experiencing an upward trajectory after the release of the report.

In my opinion, the initial kneejerk reaction to the report was appropriate, and it’s conceivable that we might see a retesting of some of those levels. A comprehensive analysis of the CPI report suggests that a rate hike in September is unlikely unless there is an unexpectedly substantial surge in September’s CPI figures, accompanied by a robust non-farm payrolls report. Looking beyond that, there are valid reasons to believe that the Federal Reserve might be concluding its tightening cycle.

USD/JPY Live Chart

USD/JPY

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Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.