Japanese Yen picks up from lows but remains close to intervention levels

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USD/JPY pulls back from monthly highs at 159.65 but remains close to the key 160.00 area.
Concerns about fresh US-Iran hostilities hammered risk appetite during the Asian session.
Later on Thursday, the US PCE Prices Index and Tokyo CPI figures are likely to set the pair's direction.

The Japanese Yen (JPY) trims losses against the US Dollar (USD) during Thursday’s European trading session, although it remains dangerously close to levels that allegedly triggered an intervention in April. The USD/JPY pair trades at the 159.45 area at the time of writing, after hitting fresh monthly highs at 159.65, but remains close to the 160.00 level, considered a line in the sand for Tokyo interventions.

The Greenback extended gains during the Asian session, as fresh hostilities between the US and Iran cast doubt about the fate of the frail peace process and dampened hopes of a swift reopening of the Strait of Hormuz. US Treasury yields rose, buoying the US Dollar higher, and Oil prices bounced from lows, adding pressure on the JPY.

Market fears ebbed during the European trading session, and the USD pulled back against its main peers. Investors' focus is now on the US Personal Consumption Expenditures (PCE) Price Index release, due later on the day, which is expected to show that inflation accelerated further in April, providing further reasons for Federal Reserve (Fed) hawks to call for monetary tightening.

In Japan, Bank of Japan Governor (BoJ) Kazuo Ueda warned that a temporary energy shock can become persistent if it feeds into wages, expectations, and price-setting behaviour. These comments endorse hopes that the BoJ will tighten its monetary policy further after the June 15 meeting. Markets, however, will await the Tokyo CPI release, due later on the day, to confirm those expectations.

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.

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