Following dismal US data, USD/JPY falls as investors take profits

The University of Michigan’s Consumer Sentiment Index has slipped to 77.9, indicating a weakening in US consumer confidence. However, the US Dollar is expected to consolidate weekly gains following hot inflation data.

The Consumer Sentiment Index slipped to 77.9 from 79.4 in March, below the market expectation of 79. The Current Conditions Index declined to 79.3 from 82.5, and the Consumer Expectations Index fell to 77 from 77.4. The one-year inflation outlook climbed to 3.1% from 2.9% in April, while the five-year inflation outlook rose to 3% from 2.8%.

The US Bureau of Labour Statistics revealed a rise in inflation this week, with the Consumer Price Index (CPI) rising to 3.5% year-over-year in March, up from February’s 3.2%. This fueled a sharp rise in hawkish bets on the Federal Reserve (Fed) and the US Treasury yields, which benefited the USD during the week.

Markets seem to have given up on the hopes of a June rate cut, and if data validates those bets, the USD may see further upside. On the daily chart, the USD/JPY pair reveals a sustained trend in positive territory on the Relative Strength Index (RSI), with buyers correcting overbought conditions. The pair’s position above the 20-day, 100-day, and 200-day Simple Moving Average (SMA) portrays a positive short-term and long-term trend.