USD Rallies on Hotter Inflation

The US Dollar is seeing better demand today on the back of yesterday’s February inflation report. Annualised CPI was seen rising to 3.2% from 3.1% prior with month over month readings moving to 0.4% from 0.3% on headline and remaining at 0.4% on core. With inflation proving sticky around current levels, the read through on this release is that the Fed will be in no rush to cut rates imminently. Friday’s jobs data had opened the door to the view that perhaps the Fed might bring rate cuts forward if the US economy is on the turn. However, with headline jobs growth still high and with inflation ticking up again, the near-term picture remains stubbornly hawkish, leading USD as a result.

USDJPY in Focus

Following a sharp correction lower, USDJPY is now turning higher once again. Along with hotter-than-forecast US inflation data, the pair is being helped by comments from BOJ’s Ueda yesterday. Ueda struck a less optimistic tone on the economy, lamenting soft consumption, and warned that there are still weak signs to be monitored. These comments are fuelling skepticism ahead of the bank’s upcoming meeting with some traders wondering whether the bank will signal any upcoming shift in policy at all. While this narrative holds and with USD finding support, USDJPY looks to have room to recover further near-term.

Technical Views

USDJPY

The sell off in USDJPY has seen the market breaking down through support at the 148.98 level. With momentum studies bearish, focus is on a test of the 145-level next while we hold below 148.98. Back above there, however, focus turns back to 151.81 next.