USD/JPY looks to reclaim five-year high at 116.40 on elevated US inflation levels
- USD/JPY is eyeing a five-year high at 116.35 on higher expectations of a 50-bps interest rate hike.
- US CPI at 7.9% is untouched by the elevated oil prices post-Russia invasion of Ukraine.
- The renewed risk-aversion theme has underpinned the greenback against the Japanese yen.
The USD/JPY pair has extended its gains on Thursday after the US Consumer Price Index (CPI) reached sky-rocketing levels at 7.9%. The print of US CPI was in-line with the market estimates but elevated firmly from the prior record of 7.5%. This has fueled the greenback against the Japanese yen and the USD/JPY is eyeing a five-year high at 116.35.
As per Powell’s testimony last week, an interest rate decision with a hike by 25 basis points (bps) was very much confirmed and investors were cheering not so aggressive monetary policy in times of elevated inflation levels and optimal employment numbers. However, a claim of a 40-year high US CPI print at 7.9% has spooked the market. This has raised the odds of a 50-bps interest rate hike in the March monetary policy meeting.
It is worth noting that the US CPI print at 7.9% belongs to February, which is untouched by boiling oil prices. Therefore, the situation of inflation seems much worse than the current levels, and to combat the turmoil, the Fed has to take necessary measures soon.
The US dollar index (DXY) has rebounded sharply on the absence of any progress post the Russia-Ukraine peace talks. The Kremlin has escalated its demand to ‘surrender’ from Ukraine against a ceasefire to which Ukraine is not willing to process. The renewed geopolitical tensions have brought a fresh impulsive wave in the risk-aversion theme and the DXY has been underpinned again.
Although the headlines from the Ukraine crisis will remain a major driver for the spot, investors will also focus on Japan’s Overall Household Spending, which is released by the Ministry of Internal Affairs and Communications. The Overall Household Spending is likely to be recorded at 3.6% against the prior print of -0.2%.