Friday's softer US PCE Price Index keeps the USD bulls on the defensive and weigh.USD/JPY pair
struggles to capitalized on Friday's solid intraday recovery of over 300 pips from the 138.00 neighbourhood, or a one-and-half-week low and kicks off the new week on a softer note. Spot prices remain on the defensive through the Asian session and currently trade around the 140.80-140.75 region, down 0.25% for the day.
The US Dollar edges lower on Monday in the wake of signs of receding underlying price pressures and is seen as a key factor acting as a headwind for the USD/JPY pair. In fact, the US Bureau of Economicreported that the Personal Consumption Expenditures Price Index rose 0.2% last month and advanced 3.0% over the twelve months through June, registering its smallest gains since March 2021. Excluding the volatile food and energy components, the Core PCE Price Index came in at 4.
That said, the stronger US GDP print pointed to an extremely resilient US economy and increased the likelihood that the Fed could hike interest rates further. It is worth recalling that Fed Chairhad said last week that the economy still needs to slow and the labour market to weaken for inflation to credibly return to the 2% target.
The markets, meanwhile, already seem to have digested the Bank of Japan's hawkish move to make its Yield Curve Control policy flexible on Friday. The central bank said that the 0.5% cap on the 10-year Japanese government bond yield will now be "references" rather than "rigid limits" and that it would step in the markets at a yield of 1.0%.
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