USD/JPY Slips as US Core PCE Softens as Expected

• USD/JPY sees a slight decline following the release of February’s Core Personal Consumption Expenditure (PCE) data, signalling a gradual easing of inflation with lingering concerns.
• Federal Reserve officials are cautious about potential rate cuts, waiting for further evidence of sustained disinflationary trends.
• Market attention is focused on insights from Fed Chair Powell and other Fed speakers.
• Following the unveiling of the US Core Personal Consumption Expenditure (PCE) price index, which serves as the Federal Reserve’s favoured inflation measure, USD/JPY experienced minor losses.
• The data aligns with expectations, indicating a continuation of lower prices, albeit slower. The pair is currently trading at 151.25, down by 0.09%.

USD/JPY Reacts Modestly to Latest US Economic Indicators

The US Bureau of Economic Analysis (BEA) reports that Core PCE for February was below expectations, registering a 0.3% MoM increase, lower than the previous month’s figures. Yearly data also cooled from 2.9% to 2.8%, which aligns with consensus estimates. Headline inflation figures for February stood at 0.3%, falling short of January forecasts, while the 12-month inflation rate rose to 2.5% from the previous month’s 2.4%.

Policymakers remain cautious despite the data offering some relief to the Federal Reserve. Other inflation metrics, such as the Consumer Price Index (CPI) and the Producer Price Index (PPI), suggest that inflation persists above the 3% threshold.

In a hawkish tone, Fed Governor Christopher Waller emphasized on Wednesday that the central bank is quick to implement rate cuts. Traders await further comments from San Francisco Fed President Mary Daly and Fed Chair Jerome Powell.

While the disinflationary process unfolds, the labour market is again tightening, with fewer Americans filing unemployment benefits for four consecutive weeks. This could lead to increased spending, potentially driving prices higher.

Analysts from Wells Fargo, cited by Bloomberg, noted, “We just haven’t seen that consumer fatigue that we were getting some hints of in the last month’s data… That’s going to make it hard, I think, for businesses to hold the line on prices if consumers are still willing to splash out at these levels.”

USD/JPY Price Analysis: Technical Outlook

On the daily chart, USD/JPY is consolidating around the 151.15/151.60 range, lacking significant traction as Japanese authorities consider intervening in the markets. A push above 152.00 could pave the way for a challenge to 153.00. Conversely, failure to sustain prices above 152.00 and 151.00 may trigger a downward move, with initial support at the Tenkan Sen around 150.49, followed by the Senkou Span A at 149.86.

USD/JPY