Growing speculation for another Federal Reserve rate hike may keep the USD buoyant as the Personal Consumption Expenditure (PCE) Price Index points to sticky inflation. The unexpected uptick in the core PCE, the Fed’s preferred gauge for inflation, along with the 1.1% rise in US durable goods orders, better-than-expected jobless claim data, and healthy employment data may push the Federal Open Market Committee (FOMC) to further embark on its hiking cycle.
It remains to be seen if Chairman Jerome Powell and Co. will project a higher trajectory for US interest rates as the central bank is slated to update the Summary of Economic Projections (SEP) at its next meeting in June. On May 24, Fed released the minutes of the FOMC meeting that was held on May 2-3, 2023.
The Minutes indicated that Fed remained worried about inflation, which is not surprising as all Fed speakers have highlighted the importance of the fight against inflation. Speculation surrounding Fed policy may sway USD/JPY as the CME FedWatch Tool now reflects a greater than 60% probability for another 25bp rate hike. Growing expectations for higher US interest rates may lead to a further appreciation in the exchange rate as the Bank of Japan (BoJ) sticks to Quantitative and Qualitative Easing (QQE) with Yield-Curve Control (YCC).
Technical Outlook.
USD/JPY registers a fresh yearly high (140.94) following a batch of better-than-expected data out of the US, and the move above 70 in the Relative Strength Index (RSI) is likely to be accompanied by a further advance in the exchange rate like the price action from last year.