The Japanese yen extended its rally for a third consecutive session on Tuesday, buoyed by a weaker U.S. dollar and softer-than-expected inflation data out of Japan. In the European session, USD/JPY fell 0.33% to 140.38, marking a 1.3% gain for the yen since last Thursday.
The currency’s momentum follows the release of the Bank of Japan’s Core CPI, which held steady at 2.2% for the third straight month in March—falling short of the projected 2.4%. Meanwhile, Japan’s National Core CPI rose 3.2% year-on-year, in line with expectations and up from February’s 3.0%. Headline CPI, however, ticked down to 3.6%, slightly below the anticipated 3.7%.
The inflation data comes just ahead of the BoJ’s upcoming policy meeting. While the central bank has previously signaled its intent to continue tightening amid rising wages and inflation, uncertainties stemming from potential U.S. tariffs and global trade tensions may prompt policymakers to delay further rate hikes.
In a related development, U.S. and Japanese finance ministers are slated to meet this week as Tokyo seeks exemptions from proposed American tariffs. The talks could also address currency policy, with U.S. officials expected to revisit long-standing accusations that Japan maintains an undervalued yen to bolster exports.
On the technical front, USD/JPY briefly tested support at 140.18. Further support lies at 139.49, while resistance levels are noted at 141.16 and 141.85.
Pound Climbs to Seven-Month High Amid Dollar Weakness
On the other hand, The British pound broke above $1.33, its highest level in seven months, driven primarily by broad-based weakness in the U.S. dollar, despite subdued inflation figures from the UK.
UK headline CPI slowed to 2.6% year-on-year, while services inflation eased to 4.7%, easing pressure on the Bank of England. In response, traders modestly increased their bets on rate cuts, now pricing in 86 basis points of easing by year-end, with a growing likelihood of a fourth cut in December.
The softer inflation profile may afford the BoE greater flexibility to support the domestic economy, which continues to face headwinds from sluggish global trade and elevated household expenses.
Meanwhile, the U.S. dollar index slipped to a three-year low, undermined by market concerns over the Federal Reserve’s independence and the broader economic impact of escalating trade disputes. The market is currently pricing in a 10% chance of a rate cut in May, rising to 62% for June.
With no major U.S. data releases scheduled today, investor attention turns to speeches from three FOMC members, which could offer further insight into the Fed’s near-term policy path.
