Introduction:
The USD/JPY pair retreated from its two-week high, but there was a lack of follow-through selling. Softer inflation data and the risk-on environment are the key reasons behind the retreat. However, the safe-haven yen was weighed down by the risk-on environment, which lent support to the pair. This article will discuss the factors that led to the USD/JPY pair’s retreat from its two-week high.
Softer Inflation Data Weighs on USD
The USD/JPY pair retreated from its two-week high on account of softer inflation data. The US Labor Department’s consumer price index (CPI) rose 0.2% in February, which was below the market consensus of a 0.3% increase. The core CPI, which excludes food and energy, rose 0.1%, missing the market expectation of a 0.2% increase. The softer-than-expected inflation data weighed on the USD, as it lowered the prospects of an interest rate hike by the Federal Reserve. Lower interest rates make the currency less attractive to foreign investors, resulting in a decline in its value.
Lack of Follow-Through Selling Supports USD/JPY
Despite the softer inflation data, there was a lack of follow-through selling in the USD/JPY pair. The pair was supported by the absence of any significant bearish news. The market sentiment remains positive, as the US and China have resumed trade talks, reducing the risk of a global economic slowdown. Moreover, the Federal Reserve has adopted a patient stance on monetary policy, indicating that it will be cautious in raising interest rates. The lack of follow-through selling kept the USD/JPY pair supported, despite the softer inflation data.
Risk-On Environment Weighs on Safe-Haven JPY
The risk-on environment undermined the safe-haven JPY and lent support to the USD/JPY pair. The market sentiment remains positive, as the US and China have made progress in their trade negotiations. Moreover, the European Union has agreed to extend the Brexit deadline, reducing the risk of a disorderly Brexit. The risk-on environment has reduced the demand for safe-haven assets, such as the JPY. This has resulted in a decline in the value of the JPY, providing some support to the USD/JPY pair.
Conclusion
In conclusion, the USD/JPY pair retreated from its two-week high on account of softer inflation data. However, the lack of follow-through selling kept the pair supported. The risk-on environment weighed on the safe-haven JPY, which lent support to the USD/JPY pair. The market sentiment remains positive, as the US and China have made progress in their trade negotiations, reducing the risk of a global economic slowdown. The Federal Reserve’s patient stance on monetary policy has also supported the USD/JPY pair. The pair is expected to remain supported in the near term, as long as there is no significant bearish news.
