Macro

Yen Jumps 1.1% vs Dollar as CPI Hints at Fed Ease

Yen appreciates over 1% against dollar as US CPI report signals easing inflation, hinting at potential Fed rate cuts.

By Athena Xu

5/15, 09:15 EDT
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Key Takeaway

  • Yen surged over 1% against the dollar as US CPI data indicated easing inflation, leading to a drop in the greenback and Treasury yields.
  • Core inflation rose by just 0.3% from March, signaling potential relief for the Federal Reserve's inflation concerns.
  • The yen reached its session high at 154.76 per dollar, highlighting increased investor confidence in the Japanese currency amidst softening US inflation pressures.

Yen Surges as Inflation Cools

The Japanese yen experienced a significant rally, appreciating more than 1% against the dollar, following the release of the US CPI report for April. This report indicated a softening in inflation pressures, with the core measure of inflation rising by just 0.3% from March. The yen's intraday gains extended to as much as 1.1%, reaching 154.76 per dollar, marking its strongest session performance.

Dollar and Bonds React to CPI

In response to the CPI data, the Bloomberg gauge of the greenback fell, and US Treasury yields tumbled, with the 10-year yields dropping to a five-week low of around 4.42%. This movement in the financial markets underscores the impact of inflation data on currency and bond markets. The dollar's decline was part of a broader trend, with the Norwegian krone and yen outperforming among the G-10 currencies. Meanwhile, US equity futures remained steady, and European stocks rallied, particularly in sectors like real estate, telecoms, and utilities.

Market Anticipation and Powell's Stance

Ahead of the CPI release, option traders had been accumulating bearish bets on the dollar, anticipating a potential drop. This sentiment was reinforced by Federal Reserve Chair Jerome Powell's remarks, suggesting that an interest-rate hike was unlikely to be the central bank's next move. Powell's comments, along with the CPI data, have led traders to speculate on the possibility of monetary easing within the year, which could exert further downward pressure on the greenback.

Economists' expectations for the April consumer price index were for a slowdown to 3.4% from 3.5% the previous month. A reading in line with or softer than forecasts could solidify expectations for two quarter-point interest-rate cuts from the Fed this year. The Bloomberg Dollar Spot Index slipped as Powell urged patience on inflation, indicating a shift in market sentiment.