USD/JPY edges up above 155.00 ahead of the US PCE inflation release

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USD/JPY edges up above 155.00 ahead of the US PCE inflation release

The US Dollar returns above 155.00 against the Yen but remains 0.6% down on the week.
Investors' bets of further Fed monetary easing have kept the US Dollar on the defensive.
Japanese officials reiterate their commitment to act against excessive Yen weakness.

The US Dollar has popped up above the 155.00 line against the Japanese Yen on Friday’s European session, after bouncing up from two-week lows at 154.30 on Thursday. The pair, however, remains on track to a 0.6% weekly low, weighed by market hopes that the US Federal Reserve will cut interest rates for next week.

On Friday, all eyes are on September’s delayed US Personal Consumption Expenditures (PCE) Price Index report. PCE data is expected to show that inflationary pressures remain elevated, although it is unlikely to alter market expectations of further Fed easing.

The unexpected decline in net jobs, shown by the US ADP Employment Change report on Wednesday, confirmed the weak momentum of the US labour market and strengthened the case for lower borrowing costs. The US CME Group’s Fedwatch Tool shows an 87% of a 25-basis-point rate cut next week, and between two or three more cuts next year.

The Bank of Japan (BOJ), on the contrary, has been laying the ground for a 25 basis point rate hike after its December 19 meeting, although Governor Kazuo Ueda cast doubt on Thursday about what comes next.

Apart from that, Japanese officials have reiterated their pledge to intervene in case of excessive Yen weakness. Japan’s Cabinet Secretary confirmed on Thursday that the authorities will “take appropriate action for excessive, disorderly FX moves," echoing comments by Finance Minister Katayama earlier this week, and providing some support to the Japanese Yen.

Economic Indicator

Personal Consumption Expenditures - Price Index (YoY)

The Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The YoY reading compares prices in the reference month to a year earlier. Price changes may cause consumers to switch from buying one good to another and the PCE Deflator can account for such substitutions. This makes it the preferred measure of inflation for the Federal Reserve. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.