US dollar falls, gold prices rise as high inflation fears quelled
Learn how markets reacted to PCE inflation data and what could come next for US rates and US dollar.
USD/JPY's rapid reversal
USD/JPY fell below 150.00 Thursday morning following PCE inflation data from the US, nearing 149.20. This roughly 100 pip decline is significant because while 150.00 is historically near the top of the range for USD/JPY, the pair has been quite comfortable above that price in 2024. Minimal news from the Bank of Japan has caused USD/JPY to react heavily to US data in recent trade.
Resurgence in gold prices
Concurrently, gold has rebounded impressively, vaulting back above the $2050 mark. This rally reflects investors' growing appetite for safe-haven assets amid softening rate expectations and the latest inflation data. Gold's near return to its highs demonstrates its status as a perennial refuge in times of uncertainty, with traders often turning to the precious metal as a hedge against inflation and currency devaluation.
PCE inflation and FOMC outlook
The latest data from the PCE Price Index came in line with expectations, reflecting a Core PCE for January at 2.8%. This move from December's 2.9% reading marks the 12th consecutive decline in Core PCE and a steady movement towards the Federal Reserve's 2% inflation target. After CPI data earlier in the month raised questions around potential rate cuts and their relevance, this PCE data makes the FOMC's multi-year rate projections appear plausible. Several rate cuts are expected in 2024, and cooling inflation would be the primary signal to the FOMC that the US economy is ready for softer interest rates.
USD's potential trajectory
With USD/JPY still significantly elevated from its early 2024 levels under 142.00, the question arises: how much further can the US dollar fall? The currency's position over 700 pips above its starting point for the year indicates room historically for further adjustments, contingent on forthcoming economic indicators and policy decisions. This uncertainty underscores the importance of closely monitoring market signals and central bank guidance for clues on future movements.
In summary, the latest shifts in USD/JPY and gold prices amid evolving inflation expectations and economic data offer valuable insights into market sentiment and potential trends. As investors and traders navigate these developments, staying informed and adaptable will be key to understanding and capitalizing on the opportunities that lie ahead in the complex landscape of global financial markets.
How to trade USD/JPY
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD/JPY
Trading forex requires an account with a forex broker like IG. USD/JPY can be found in the 'Major' pairs tab. Many traders watch major forex pairs like GBP/USD and EUR/USD for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
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