The USD/JPY pair has retreated from its brief recovery near 138.83 during the European session, resuming its downward movement in response to subdued inflationary pressures in the United States. The market now expects the Federal Reserve (Fed) to implement only one more interest rate hike by the end of the year.

In London, S&P 500 futures have recorded significant gains, reflecting an optimistic market sentiment. However, US equities may face pressure ahead of the release of second-quarter corporate earnings data. Earnings across various sectors could be volatile due to the impact of higher Fed interest rates and tight credit conditions imposed by commercial banks.

The US Dollar Index (DXY) has reached a new annual low at 100.34 as the hawkish remarks from Fed policymakers fail to counterbalance the impact of the soft Consumer Price Index (CPI) report for June.

Minneapolis Fed Bank President Neel Kashkari highlighted the need for further rate increases and emphasized that banks should be prepared to undergo new stress tests to identify any vulnerabilities and assess capital shortfalls.

Looking ahead, investors will closely monitor the release of the Producer Price Index (PPI) data for June at 12:30 GMT. It is anticipated that both the monthly headline and core PPI will show a growth rate of 0.2%.

However, the annual headline PPI is expected to decelerate to 0.4% compared to the previous release of 1.1%. A decline in prices of goods and services at the factory level would alleviate inflationary pressures and indicate a slowdown in overall demand.

In Tokyo, expectations of a potential adjustment to the Bank of Japan’s (BoJ) Yield Curve Control (YCC) policy have bolstered the Japanese Yen. Higher wages have contributed to increased inflationary pressures, reducing the likelihood of a shift toward a less accommodative policy stance.


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