The US dollar was weaker across the board this morning. The cash Dollar Index dropped back below 99.60, and the area around here has acted as both support and resistance in the past. The US CPI and PPI came out in line with expectations, traders were relieved that they didn't rebound, particularly after last month's sharp drop in the CPI.
This, along with last week's poor payroll numbers, has led to a sharp dial back in rate hike expectations from the US Federal Reserve. There's now a 70% probability that the Fed keeps rates unchanged at next month's meeting, up from 50% earlier this week.
At the same time, speculation is growing that the Bank of Japan will raise rates at its next monetary policy meeting in September. Not only that, but there's also a feeling that the notoriously cautious central bank may carry on raising rates, and that it has the political backing to do so.
All this has helped to strengthen the yen, helping to pull the USD/JPY down towards 159.00, widening the gap from 160.00 - a level which many analysts see as the next trigger for further intervention to weaken the yen. Overall, though, the dollar's downside looks cushioned. There's still a 64% chance of a Fed rate hike by year-end and geopolitical risk from the US-Iran standoff may continue to offer support.
Source: TN Trader
Also, energy-driven fiscal concerns could cap the yen. Japanese borrowing costs remain low relative to other major economies, and this continues to fuel carry-trade flows that work against the yen while supporting the US dollar. Attention now turns to US Retail Sales which come out this afternoon. This, along with Consumer Sentiment and Inflation Expectations, may provide some insight into the health of the US consumer.
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