Softer US Data Reduces Interest Rate Hike Expectations
The US economic data released in the middle of the summer trading period was softer than expected, leading to reduced expectations for higher interest rates. The Consumer Price Index (CPI) came in line with expectations, while the Producer Price Index (PPI) was slightly below forecasts. This weaker-than-expected inflation data led to a decrease in market expectations for a Federal Reserve rate hike in September.
The US consumer data was also concerning, with retail sales falling 0.6% in July, the biggest monthly decline since May 2025. Additionally, consumer sentiment was weaker than expected. As a result, the USD/JPY moved higher early in the week due to increased buying activity and eased concerns about another Japanese intervention.
The Bank of Japan may consider raising interest rates as early as September, sparking speculation. Meanwhile, crude oil prices continued to rise due to tensions in the Middle East, keeping supply disruptions through the Strait of Hormuz a major concern.