USD/JPY reached 108.73, a level not seen since June, 14. That was the logical reaction to the worse-than-expected US CPI release.
July's US consumer price index came out at 1.7% vs +1.8% yoy forecast and the monthly growth came in at 0.1% vs 0.2% expected — the smallest increase since March and 5th month of disappointment in a row.
That the chance of a Fed rate hike before year's are lower post CPI. If there is no inflation, there is no rush to raise rates. The probability of a hike by year-end is now 42.5%, from 47.3% a month earlier, which means that more than half of the market does not expect more tightening this year.
On the back of rising geopolitical tension with North Korea and lower odds of a Fed hike, USD/JPY looks poised to fall, with initial targets at 108,70 followed by 108.00.
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