USD/JPY Falls as Weak U.S. Dollar Faces Pressure from Lower Inflation

The USD/JPY currency pair declined on Tuesday, driven by a weakening U.S. dollar following a notable slowdown in U.S. consumer price inflation for July. The pair dropped to 147.83, down from the previous day’s close of 148.14. During the trading session, USD/JPY reached a high of 148.51 and a low of 147.57.

The broader U.S. dollar index fell approximately 0.3%, reflecting growing market expectations of a Federal Reserve interest rate cut after the release of the latest consumer price data. Markets now assign a 96% probability to a rate cut at the Federal Open Market Committee’s September meeting, up from 88% based on prior forecasts, as the inflation report met expectations without surprises.

The U.S. dollar index, which measures the dollar’s performance against a basket of major currencies, slipped to 97.97 points from the previous close of 98.52 points. During Tuesday’s trading, it hit a high of 98.62 points and a low of 97.97 points.

The U.S. Consumer Price Index (CPI) for July rose by 0.2%, aligning with market expectations. However, the annual CPI reading remained steady at 2.7% from June, slightly below market forecasts of a 0.1% increase to 2.8%. Meanwhile, the core CPI, excluding volatile food and energy prices, increased by 0.3% in July, matching expectations. On an annual basis, core CPI climbed to 3.1% from 2.9% in June, surpassing market predictions of a 3.0% rise.

The combination of stable but slightly underwhelming inflation data and heightened expectations for a Federal Reserve rate cut has put downward pressure on the dollar, contributing to the USD/JPY pair’s retreat. As markets await further economic indicators and the Fed’s next moves, the currency pair remains sensitive to shifts in monetary policy expectations.