The yen weakened further against the dollar on Tuesday, pushing USD/JPY toward the closely watched 160 level and erasing more of the gains from last month's intervention. The move comes a day before the U.S. releases July inflation data that traders expect to shape the Federal Reserve's next rate decision.
USD/JPY edges toward 160
The USD/JPY pair rose 0.1% to 159.31, inching closer to the 160 level that triggered a landmark intervention last month. The yen is giving back more of the ground it recovered from that action, even as the broader dollar stayed muted.
Meanwhile, the U.S. dollar index was little changed at 99.82, tracking the greenback against six major peers. Traders held back from big moves ahead of Wednesday's consumer price index (CPI) report and Thursday's producer price index (PPI) print for July.
Inflation data could reshape rate expectations
The CPI and PPI releases follow an unexpectedly weak jobs report last Friday, which prompted a major recalibration of Federal Reserve rate hike expectations. Economists expect headline and core inflation to rise month-on-month from a negative and flat reading, respectively, in June, though both measures are seen moderating slightly on a year-on-year basis.
José Torres, senior economist at Interactive Brokers, said core inflation could post a 63-month low if it comes in slightly below expectations at 2.4%. According to Interactive Brokers: "cooling cost pressures are being masked by geopolitical tensions". Torres added that a resolution to Middle East tensions would quickly remove rate hikes from the conversation, with the Fed's 2% target within reach by year-end.
Oil prices climbed after an Iranian official said the Strait of Hormuz would stay closed until the U.S. meets Tehran's demands, adding another variable for currency markets bracing for Wednesday's inflation report.
Source: Investing.com
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