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USD/JPY shying away from 20-year high ahead of US CPI

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The May reading for the consumer price index (CPI) in the US is expected to be a mover for the US dollar.



Daniela Sabin Hathorn | Presenter and Analyst, London | Publication date: Thursday 09 June 2022 

CPI expectations

The May reading for the consumer price index (CPI) in the United States is expected to be an important mover for the US dollar.

Analyst forecasts show the growth in the core reading softening slightly when compared to April, whilst the headline is likely to have continued to grow at a faster pace in May. This outcome would be a good reading for the economy.

Headline inflation, which includes volatile prices like energy and food, is expected to continue to pick up as the unresolved conflict in Ukraine keeps commodity prices at record highs. Policymakers are expecting this, and so are markets, and therefore the key focus is going to be on core inflation.

Whilst energy and food prices are a key part of consumer spending and, therefore, they have a big effect on the economy, the more volatile nature of these prices mean we are able to momentarily look past them if we know, or think we know, the main source of their elevated prices, which in this case is the war in Eastern Europe.

And so that is why markets are likely going to be focusing on this potential softening of core CPI, because we are happy to dismiss higher energy and food prices for the time being. If everything else is starting to show easing price pressures, then we may take it as a sign that stagflation – persistent high inflation and slowing growth – may not be such a big threat after all.

A core CPI reading below expectations of 0.5% would ease pressure on the Federal Reserve (Fed) to act too aggressively to combat inflation, potentially reducing the size of the rate hike at the meeting next week. In this case, the US dollar (USD) is likely to see a further pullback from recent highs.


This would play out nicely in USD/JPY, given the pair has been trading in a strong ascending pattern for the last two weeks. A pullback in the dollar may see USD/JPY back below previous resistance at 132.38, before finding some support at 130.00.

On the flip side, a stronger than expected reading would likely push up the pair even higher, with the January 2002 highs in sight at 135.18, confirming the current bullish pattern.

If the consumer price index comes in as expected at 0.5% then the US dollar is likely going to continue to be supported but the move higher may be short-lived.

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