Economists are predicting that the US annual inflation rate will hold steady at 3.4% in May, with the core inflation rate expected to dip slightly from 3.6% to 3.5%. These numbers could impact investor confidence in potential Federal Reserve rate cuts in 2024.
A prolonged period of higher interest rates from the Fed could lead to increased borrowing costs and reduced disposable income, potentially dampening consumer spending and inflation driven by demand.
The Federal Reserve is set to announce its interest rate decision, with expectations that rates will remain unchanged. However, uncertainty surrounding future rate hikes may give added importance to the FOMC Economic Projections and Press Conference.
Recent economic data, including the US Jobs Report and inflation figures, could lead to a more aggressive economic outlook and a potential rally in the US dollar. Federal Reserve Chair Powell’s statements following the release of economic projections will also be closely watched.
In the short term, the USD/JPY currency pair will be influenced by US inflation data, the FOMC Economic Projections, and the Bank of Japan’s policy decisions. A stronger US dollar could result from higher than expected inflation and a more hawkish economic outlook, though the Bank of Japan’s guidance will also play a role in market movements.
On the daily chart, the USD/JPY pair remains bullish, trading above both the 50-day and 200-day Exponential Moving Averages (EMAs). A breakout above 157.5 could push the pair towards the 159 level and potentially reach the April 29 high of 160.209. Conversely, a drop below 156.5 could see the pair testing the 50-day EMA and potentially falling to the 151.685 support level.
The 14-day Relative Strength Index (RSI) suggests that the USD/JPY pair may reach the April 29 high before becoming overbought. Overall, market participants will closely monitor inflation data, economic projections, and central bank decisions for cues on future market movements.