Japanese Yen pares gains against US Dollar as markets digest US CPI

The Japanese Yen reduced its gains against the US Dollar on Wednesday, as unchanged US Consumer Price Index (CPI) data failed to provoke a substantial shift. At the time of publication, USD/JPY traded near 159.20, having touched an intraday low of 158.58. The headline Consumer Price Index (CPI) increased by 0.1% in July, reversing June's 0.4% decline.

Yearly, inflation decelerated to 3.4% from 3.5%. Core CPI rose 0.2% month-over-month after remaining flat in June, with the annual pace easing to 2.5% from 2.6%. Following the release, traders curtailed expectations of Federal Reserve (Fed) interest rate hikes, which had already weakened after the softer-than-anticipated July Nonfarm Payrolls (NFP) data.

The probability of a September hike fell to 38% on the CME FedWatch Tool, down from 44% previously. US Treasury yields slipped across the curve, while the US Dollar recovered from its post-CPI decline. The US Dollar Index (DXY), tracking the Greenback against six major currencies, traded around 99.82, bouncing off a low of 99.61.

The US Dollar remained within its recent range, despite the CPI report diminishing the odds of a September rate hike but failing to alter the broader outlook. Inflation persists excessively high, and soaring oil prices might complicate the Fed's efforts to restore inflation to its 2% goal. Concurrently, prospects for Middle East peace offer some backing for the Greenback.

Reuters, quoting an Iranian source, reported no talks between Iran and the US regarding extending the ceasefire. On the Yen side, the Japanese currency has already relinquished nearly half the gains triggered by the latest US-Japan joint intervention. Officials from both nations have hinted at readiness for further action if necessary, which might deter traders from aggressively pushing USD/JPY above the psychologically significant 160 level. The focus now turns to Producer Price Index (PPI) figures from Japan and the US, due on Thursday.