US Dollar Slumps After Inflation Eases Further – Stocks, Gold, and Silver Rally
USD/JPY shed over 400 pips in just over 30 minutes yesterday afternoon, hitting 157.42, after the latest US CPI report showed price pressures easing by more than expected in June. US dollar weakness was driven by a sharp boost in US rate cut expectations which at one stage yesterday hit a 97% probability for a cut at the September 18 FOMC meeting. The US dollar fell across the board, but the weakness in USD/JPY stood out for the size and speed of the sell-off.
This invariably sparked talk about Bank of Japan (BoJ) intervention, especially as USD/JPY was trading around a 38-year high just before the US CPI data was released. Various reports suggest that the BoJ may have been checking market prices, a known form of verbal intervention that precedes any actual action, although this remains difficult to confirm. Stop losses may also have been triggered for traders who have been running the long USD/JPY trade over the last few weeks. Japanese officials refused to comment on market speculation, leaving the market waiting for official data at the end of the month to see if the BoJ/MoF bought any Japanese Yen.
The US dollar is marginally stronger in early European trade, pushing USD/JPY back to 159.25. The pair have made a handful of attempts to break above 162.00 over the last two weeks without any success and this level of resistance should hold going forward. Financial markets are currently showing a 46% chance that the BoJ will hike rates by 10 basis points at the end of July, a move that would start to narrow the interest rate differential between the two currencies and weaken USD/JPY.
