USD/JPY recovers intraday losses as US Dollar strives to rise further

• USD/JPY pares intraday losses and recovers above 148.00 amid firm US Dollar.
• Investors shift their focus to the US inflation data for September.
• A decline in Japan’s Overall Household Spending would diminish BoJ’s rate hike bets.

The USD/JPY recovers its intraday losses and returns to the day’s high of 148.20 in Tuesday’s North American session. The major gains as the US Dollar (USD) strives to extend its upside. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto gains near a seven-week high of 102.50.

The US Dollar’s performance has remained firm as market expectations for the Federal Reserve (Fed) to deliver another larger-than-usual interest rate cut of 50 basis points (bps) in November have waned.

According to the CME FedWatch tool, traders have repriced the Federal Fund rate for November and see a 25-bps rate cut that will push interest rates lower to 4.50%-4.75% after the release of the Nonfarm Payrolls (NFP) report for September. The employment data showed that the labor demand remained robust, the Unemployment Rate decelerated and the wage growth remained strong.

Going forward, investors will pay close attention to the US Consumer Price Index (CPI) data for September, which will be published on Thursday. Economists expect the core CPI – which excludes volatile food and energy prices – to have grown steadily by 3.2%. Annual headline inflation is expected to have decelerated further to 2.3% from 2.5% in August.

The impact of inflation is expected to be slight on Fed rate cut expectations as officials are more focused on reviving consumer spending and job growth.

On the Tokyo front, Overall household spending declined by 1.9% in August, slower than expectations of a 2.6% contraction. In July, the consumer spending measure grew by merely 0.1%. This is expected to diminish expectations of more rate hikes by the Bank of Japan (BoJ) in the last quarter of the year.