USD/JPY Clings To Gains Near Two-Week High, Around Mid-133.00s Ahead Of US Inflation Data

USD/JPY

The USD/JPY pair regains positive traction on the last day of the week and maintains its bid tone near a two-week high, just below mid-133.00s through the early part of the European session.

The recent risk-on rally across the global equity markets undermines the safe-haven Japanese Yen (JPY), which, along with the emergence of some US Dollar (USD) buying, acts as a tailwind for the USD/JPY pair. Investors now seem convinced that a widespread banking crisis might have been averted.

Apart from this, hopes for a strong economic recovery in China further boost investors’ confidence. In fact, the official Chinese PMI data showed that business activity in the services sector grew at its fastest pace in 12 years in March. Meanwhile, the growth in the manufacturing sector moderated a bit during the reported month, albeit at a smaller-than-expected pace.

The USD, on the other hand, draws some support from a modest uptick in the US Treasury bond yields, bolstered by fresh speculations that the Federal Reserve (Fed) might move back to its inflation-fighting interest rate hikes. Furthermore, three Fed officials on Thursday backed the case for more rate increases to lower high levels of inflation. The US central bank, however, had signalled recently that it might soon pause the rate-hiking cycle in the wake of the turmoil in the banking sector. This, in turn, could act as a headwind for the USD/JPY pair.

Traders also seem reluctant to place aggressive bets and might prefer to move to the sidelines ahead of the release of the US Core PCE Price Index – the Fed’s preferred inflation gauge – later during the early North American session. The data will play a key role in influencing market expectations about the future rate hike path, which, in turn, will drive the USD demand and provide a fresh directional impetus to the USD/JPY pair. Nevertheless, spot prices remain on track to register strong weekly gains for the first time in the previous five.

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