- The Japanese Yen extends its downside to near 156.00 against the US Dollar even though the Greenback is on the back foot due to deepening concerns over the United States labor market strength after weak Nonfarm Payrolls (NFP) for April, lower Job Openings for March and a large number of individuals claiming jobless benefits for the first time for the week ending May 3. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, is slightly down below 105.30.
- In the current scenario, easing tight labor market conditions is unfavorable for the US Dollar and bond yields as it exhibits softening inflation outlook, which strengthens speculation for the US Federal Reserve (Fed) returning to policy normalization. The CME FedWatch tool shows that the September meeting will be the earliest when interest rates will be lowered from their current range of 5.25%-5.50%.
- This week, investors will focus on the US Producer Price Index (PPI), Consumer Price Index (CPI) and Retail Sales data for April. The US PPI data releasing on Tuesday will exhibit the change in prices of goods and services by business owners. On Wednesday, consumer inflation and Retail Sales data will be released, which will provide fresh cues on the interest rate outlook.
- Economists expect that monthly headline and core CPI rose by 0.3% in April, slower than March’s reading of 0.4%. Annual headline CPI is forecasted to have softened to 3.4% from 3.5% in March. In the same period, the core inflation that strips off volatile food and energy prices is anticipated to have decelerated to 3.6% from the prior reading of 3.8%.
- Hot inflation data will offset investors’ optimism for Fed rate cuts in September built on easing labor market data. On the contrary, soft inflation figures will strengthen investors’ confidence in the Fed reducing interest rates from September. Traders could raise bets for the Fed to start lowering borrowing rates in July if the inflation data decelerates more than expected.
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