US Dollar Driven Up by Inflation Vs. Japanese Yen

The inflation data in the United States has driven the US dollar higher against the Japanese Yen. This development comes as vaccine roll-outs carry on in the US mainland amidst the COVID-19 pandemic.

We find this news about the US dollar encouraging as it demonstrates the strengthening of the greenback versus other major currencies such as the Japanese Yen. We want our readers, including forex traders, to learn about this update as it could influence their foreign exchange-related activities in the coming days.

According to the report posted online by Channel News Asia, a news outlet delivering the latest stories in Singapore, Asia, and worldwide, the US dollar held an almost two-month high versus Japan’s official currency on Monday, May 31.

The US dollar traded at 109.87 Japanese yen. It had reached 110.20 Japanese yen on Friday, May 28, coming within striking distance of the one-year peak worth 110.97 Japanese marked at the culmination of March.

Last month, US consumer prices soared. This happening came with a measure of underlying inflation blowing past the two-percent target of the Federal Reserve System and posting its largest yearly gain since 1992 because of various supply disruptions and recovery from the COVID-19 pandemic.

The core personal consumption expenditures or PCE price index is the Federal Reserve System’s preferred inflation gauge. It increased 3.1 percent from last year, which is a tad above market expectations of a 2.9-percent rise.

Some investors remained tense, although the high reading was due partly to the base impact. April 2020 saw depressed prices due to stringent lockdowns. Additionally, the reading’s annual rise is anticipated to become moderate later this 2021.

Masafumi Yamamoto remarked that US inflation could put upward pressure on wages. Mizuho Securities’ head currency strategist cited that this situation will happen if they witness the US inflation consistently hitting over two percent.

The foreign exchange expert also pointed out that there is a risk of inflation trending higher than anticipated. The US inflation data also briefly drove the US dollar higher against other foreign currencies, although it ran out of steam ahead of a long weekend in London and New York.

The British pound stood a little modified at US$1.4189, while the euro changed hands at US$1.2194, which was off US$1.2133 low on Friday, May 28. The Chinese renminbi held firmly close to its three-year high worth 6.3590 per US dollar, trading at 6.3655 in offshore trade.

We gathered that American consumers have been facing higher prices for nearly all products and services they purchase lately. Apparently, inflation in the United States is everywhere, and consumers may not find this development favorable for them.

Nevertheless, we believe that this happening is temporary. We learned that US inflation demonstrated stronger price gains than anticipated.

This scenario keeps expectations of an eventual tapering in the Federal Reserve System’s asset-buying alive. Tapering is the deceleration of asset purchases and theoretical reversal of a quantitative easing policy that a central bank implements.

This practice aims to stimulate economic growth. We believe that the US Federal Reserve System is well aware of today’s consumer complaints on inflation.

At the moment, the US central bank is acting on the economic events relating to the COVID-19 pandemic and vaccine roll-outs. But we think they will also take measures soon to keep the US dollar robust and consumer goods’ prices affordable for the majority.

As for the other countries whose currencies are adversely impacted by the strengthening of the US dollar, we believe that their central banks can weather this temporary event. These government bodies have mechanisms that can help their official currency adapt to global trends and deal with external shocks.

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