Yen Reverses Gains as US Inflation Data Fuels Greenback Rally

The Japanese Yen reversed its earlier gains against the US Dollar after the release of the latest US inflation data. The Personal Consumption Expenditures (PCE) Price Index rose 0.2% MoM in July, above the forecasted 0.1%, while headline inflation held steady at 3.7%. Core PCE inflation increased 0.2% MoM, matching forecasts.

The US Dollar Index (DXY), which tracks the value of the Greenback against a basket of six major currencies, rose to around 99.17, up roughly 0.25% on the day. Markets now see a 65% chance that the Federal Reserve will leave interest rates unchanged in September.

Despite expectations of a Bank of Japan rate hike at its upcoming meeting, the Yen is receiving limited support as fiscal concerns dominate market sentiment. Rabobank's FX strategists note that a sustained recovery in the Yen will require clear evidence of a more proactive stance from the BoJ and reassurances about JGB supply.