USD/JPY Forecast: Lower Amid Speculation of Fed Rate Hike Pause after CPI Comes in Below Expectations

Highlights

• US CPI rose 0.1% last month, below expectations
• Inflation concerns remain, but Fed may pause rate hikes
• USD/JPY down on dovish Fed meeting minutes

Overview

The Dollar/Yen is lower late Wednesday, following the relinquishment of previous gains. The U.S. dollar is under pressure as a result of earlier data indicating that consumer prices in March rose less than anticipated, which has increased the likelihood of the Federal Reserve halting its rate hikes after a probable increase in May.

Additionally, sellers are responding to the dovish comments featured in the Federal Reserve meeting minutes, which were released at 18:00 GMT.

At 18:22 GMT, the USD/JPY is trading 133.204, down 0.492 or -0.37%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) is at $69.97, up $0.31 or +0.45%.

CPI Increases 0.1% Last Month, Lower than Expected

Today’s data shows that the Consumer Price Index (CPI) in the United States increased by 0.1% last month, lower than economists’ expectations of a 0.2% rise and down from a 0.4% increase in February.

The CPI experienced a 5.0% gain over the past 12 months, the smallest year-on-year increase since May 2021. Excluding volatile components, the Core CPI rose by 0.4% last month, mainly due to sticky rents.

The decrease in headline inflation suggests that the Federal Reserve may only raise rates once more, and it could give the Fed the flexibility to lower rates later this year in response to an economic slowdown.

Banking Problems Weighed on Fed’s Interest Rate Decision

The minutes of the Federal Reserve meeting reveal that officials considered putting interest rate increases on hold until it was clear that the failure of two regional banks would not lead to broader financial stress.

Still, high inflation remained the primary concern, and they ultimately decided to increase the benchmark borrowing rate by 0.25 percentage points.

Concerns over the broader economic situation, particularly in light of the banking problems, remain high, and staff economists predict that the failure of Silicon Valley Bank and other financial sector turmoil in early March is likely to push the economy into a mild recession later this year.

Technically speaking…

The main trend is up according to the daily swing chart, but Wednesday’s closing price reversal top suggests a momentum shift is taking place.

Stopping today’s rally was an important retracement zone at 133.776 – 134.752. If the selling pressure continues then look for a move into the long-term retracement zone at 132.569 – 131.308. Inside this zone is a smaller support cluster at 132.339 – 131.843.

Essentially the USD/JPY is rangebound. The Fib level at 134.752 is a potential trigger point for an upside breakout.  The Fib price at 131.308 is a potential trigger point for an acceleration to the downside.