USD/JPY set to retest 110.00 ahead of US data

• USD/JPY is likely to extend the previous day’s gain.
• Rise in US Treasury yields fuel the US dollar demand.
• Eyes on Japan unemployment, US PCE data.

The USD/JPY pair remains on track to extend the previous day’s gain on the last trading day of the week. The appreciative move in the US dollar lifts the pair near the multi-month highs.

At the time of writing, the USD/JPY pair is trading at 109.82, up 0.03% for the day.

The move was primarily sponsored by an uptick in the US dollar, which bounced from the recent lows of 89.50 to trade near the 90 mark ahead of the critical US data.

The US dollar moves in tandem with the US benchmark 10-year yields that rose to 1.61% on Thursday amid better US economic data, which came in as per the narrative of the inflationary pressure.

US Weekly Jobless Claims dropped to a new pre-pandemic low of 406K, beating the market expectations of 425K. US Gross Domestic Product (GDP) Growth Rate stood unrevised at 6.4% in Q1, in line with the market expectations. US Durable Goods Orders fell unexpectedly by 1.3% in April, below the market consensus at 0.7%.

Pending Home Sales in the US jumped to 51.7% in April YoY, however, it dropped to 4.4% MoM against the market expectations of 0.8% rise.

The readings came a day before when US President Joe Biden in his first budget on Friday would seek $6 trillion in US federal spending for the fiscal year 2022, rising to $8.2 trillion by 2031.

US Treasury Secretary Janet Yellen said the above-normal inflation will last through 2021. She also said that fiscal policy should be responsible and it should not impose tax on future generations.

Meanwhile, Federal Reserve Bank of Dallas President Robert Kaplan on Thursday commented that improved labor market conditions call for taper talks. This fuels the expectation of a U-turn by the Fed on the ultra easy monetary policy in coming meetings.

On the other hand, the yen suffers after the Japanese government cuts its economic assessment for MAY, second in line after February. The rising covid cases, state of emergency and slower vaccination rollout remain an area of concern for the safe-haven asset.

Investors dumped the safer asset ahead of the release of the US Price Consumer Expenditure, a preferred gauge of inflation measure by the Fed. If improved labor market conditions and  PCE readings align with the market expectations today, then it could influence the Fed rate decision and asset purchase program.

Investors also keep an eye on the release of Japan Unemployment Rate, Tokyo Core CPI, and Tokyo Consumer Price Index. In the US economic data, Core Personal Consumption Expenditure-Price Index, Personal Spending, Goods Trade Balance, Chicago PMI, and Michigan Inflation Expectations will be closely watched.

USD/JPY Additional Levels