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The US dollar experienced a significant jump following a robust reading on the PCE inflation index, with the likelihood of a June interest rate hike by the Federal Reserve crossing the 50% mark.
Leading the rally, USD/JPY reached a session high of 140.31, surpassing yesterday’s peak and establishing a new high for the year. However, it has since retraced slightly and is trading near the 140.00 level.
Market participants now face the task of assessing whether the Federal Reserve will pause its rate hikes or be compelled to resume them, potentially aiming for a target rate of 6% or higher. While lower gasoline prices compared to a year ago could provide some tailwinds in the May/June data, the persistently strong consumer demand and robust job market make it challenging to gain the upper hand in controlling inflation.
As the market weighs these factors, the US dollar’s performance is expected to remain influenced by the evolving outlook for interest rates and inflationary pressures. Traders and investors will closely monitor upcoming economic indicators and Federal Reserve communications for further insights into the potential path of monetary policy.