USDJPY Rally Falters as Inflation Concerns and Retail Sales Weigh

The USD/JPY pair has seen a significant decline in July, falling back to a two-month low after a sudden 0.6% drop versus an expected 0.1% rise.

This unexpected move, coupled with a decline in the University of Michigan's consumer sentiment index, has reduced the likelihood of a Fed rate hike in September to 31%, and by the end of the year to 64%.

Goldman Sachs believes these figures are still overestimated, predicting that a federal funds rate hike in September is highly unlikely against a backdrop of slowing inflation, falling employment, and declining retail sales.

The bank expects consumer price inflation to continue to fall without any intervention from the Fed, with the only potential disruption being if Brent crude breaks out of its $80-90 per barrel trading range.