USDJPY reached 108.73, the level not seen since June, 14. That was the logical reaction to worse than expected US CPI release.
July US consumer price index came out at 1.7% vs +1.8% yoy forecast, and the monthly growth was 0.1% vs 0.2% expected. This is the smallest increase since March, and 5th month of disappointment in a row.
What does it mean? It means the chances of the Fed rate hike before the year end go lower. If there is no inflation, there is no rush to raise the rates. The probability of a hike by year-end is now 42.5%, from 47.3% a month earlier meaning that more than a market half doesn’t believe in more tightening this year.
On the back of rising geopolitical tension with North Korea and lower odds of the Fed rate hike USDJPY has all the chances to go lower with initial target at 108,70 followed by 108.00.
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