The USD/JPY pair has come close to the key support level of 141.00 during the London session. This currency pair is expected to remain highly active in the coming days as both the Federal Reserve (Fed) and the Bank of Japan (BoJ) are scheduled to announce their interest rate decisions on July 26 and July 28, respectively.
Despite investors anticipating a widening policy divergence between the Fed and BoJ, the major currency pair is facing downward pressure. Investors hoped that this week would see further divergence in policies between the two central banks.
However, the Fed is likely to raise interest rates in the United States as inflation remains below the desired rate of 2%. In June, inflation softened significantly in the U.S. economy, primarily due to lower prices of second-hand automobiles offsetting a slight increase in gasoline prices.
Fed officials have consistently emphasized the need for two more interest rate hikes in the face of a tight labor market and the slow pace of inflation reaching the 2% target. While the core inflation in the U.S. is softening, consumer spending has remained resilient.
Simultaneously, the US Dollar Index (DXY) has surrendered all its gains, slipping from an intraday high of 101.40. Investors are now awaiting the preliminary S&P Global PMI data to gain further guidance.
According to estimates, the Manufacturing PMI has seen a marginal increase to 46.4, compared to the previous release of 46.3. On the other hand, the Services PMI declined to 54.1 from the previous release of 54.4.
As for the Japanese Yen, top officials have expressed mixed views. BoJ Governor Kazuo Ueda advocates continuing a dovish interest rate policy to maintain inflation steadily above 2%.
However, Japan’s top financial diplomat, Masato Kanda, hinted that the central bank might consider tweaking its monetary stimulus approach in the next policy meeting due to “signs of changes” in corporate behavior concerning wage growth and price rises, as reported by Reuters.
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