Japanese Yen Gives Up Gains as US CPI Data Fails to Trigger Rate-Hike Bets

The Japanese Yen trimmed its gains against the US Dollar on Wednesday after the release of in-line US Consumer Price Index (CPI) data. The headline CPI rose 0.1% in July, reversing June's 0.4% decline, while inflation eased to 3.4% from 3.5% year-over-year. Core CPI increased 0.2% month-over-month after staying flat in June, with the annual rate slowing to 2.5% from 2.6%. The release led to a reduction in Federal Reserve (Fed) rate-hike bets, with the CME FedWatch Tool indicating a probability of a September hike now stands at 38%, down from 44% before the CPI report.

The US Dollar recouped its losses after touching an intraday low of 99.61 on the US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trading around 99.82. The USD/JPY rate trades at around 159.20, having touched an intraday low of 158.58.

The release also had limited impact on inflation expectations, with inflation still above the Fed's target of 2%. Elevated Oil prices could make it more difficult for the Fed to bring inflation back down. The prospects for peace in the Middle East lending some support to the Greenback, as reported by Reuters citing a senior Iranian source that there are no discussions between Iran and the US over extending the ceasefire.

Attention now shifts to Producer Price Index (PPI) data from both Japan and the US, due on Thursday. The Japanese Yen has already given up nearly half of the gains triggered by the recent joint US-Japan intervention, with officials indicating that they are prepared to act again if needed.