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USD/JPY finds support near 139.00 as USD Index recovers, US CPI in spotlight

USD/JPY Finds Support Amid USD Index Movement and Anticipation of US Inflation

The USD/JPY pair has encountered intermediate support around 139.00, aligning with the movement of the USD Index. While volatility in the USD Index cannot be ruled out due to upcoming US inflation data, investors are closely preparing for its impact.

Market expectations suggest that the Bank of Japan (BoJ) is unlikely to make any changes to its current ultra-dovish stance. Despite this, the USD/JPY pair has seen notable buying interest, rebounding from its earlier drop. The recovery is supported by a positive shift in the US Dollar Index (DXY), which implies that USD bulls are not readily relinquishing their gains.

Investors are now shifting their focus to the release of the United States Consumer Price Index (CPI) data, which is scheduled for Tuesday. This data, along with the ongoing contraction in US factory activity and limited expansion in the service sector, may lead to extensive discussions among Federal Reserve (Fed) policymakers about potentially pausing their policy-tightening measures.

Amid solid expectations of a neutral interest rate policy by the Fed, S&P500 futures have experienced additional gains. The US Dollar Index has witnessed a dynamic recovery, but further volatility cannot be ruled out as investors brace themselves for US inflation data.

While headline inflation may continue to soften due to recent declines in oil prices, the core CPI, which includes services, is expected to exhibit persistence in its upward trend. It’s important to note that the service sector contributes significantly to the US economy.

Looking ahead, investors will closely monitor the Bank of Japan’s interest rate decision, scheduled for next week. It is widely anticipated that there will be no alterations to the current ultra-dovish stance, as Governor Kazuo Ueda has consistently highlighted the need for monetary stimulus to boost wages and household demand.

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