- USD/JPY pares losses and reclaims the 110.80 mark on Monday.
- Higher US Treasury yields underpin the demand for the US dollar.
- Yen remains sidelined as economic growth is lagging behind its counterparts.
After touching a multi-month high in the previous week, USD/JPY retreats towards 110.50 but manages to recover losses on Monday. The pair moves in a very narrow trade band with modest gains.
At the time of writing, USD/JPY is trading at 110.81, up 0.03% for the day.
The US Dollar Index( DXY), which measures the performance of the greenback against its six major rivals, remains stout near 91.80. The greenback touched a high of 92.36 in the prior week, the levels last seen in April but failed to hold onto higher levels and consolidated in a range of 91.50-91.90.
The US 10-year benchmark yields rebounded from the four-month lows of 1.36% to trade at 1.55% on Monday. The US dollar moves in tandem with the Treasury yields, however, with little traction.
The sluggish movement in the US dollar traced back to mixed economic data and fears of reflation trade as investors analyzed that the Fed would stick to its current ultra accommodative monetary policy stance, despite rising pricing pressures.
US Consumer Spending was unchanged in May, missed the market expectations of a 0.4% growth. Personal Income fell 2% in May as compared to market consensus at 2.5%.
Fed’s preferred gauge of inflation, the US Personal Consumption Expenditure Index (PCE) rose 0.5% in May and 3.4% over the last twelve months. The subdued readings subsided inflation anxiety and reaffirmed Fed’s dovish outlook. This, in turn, kept gains limited for the greenback.
Meanwhile, a breakthrough in infrastructure spending talks in Washington in the earlier week added to the attractiveness to the US dollar and held the lower ground.
On the other hand, the Japanese yen remains pressurized as investors increase their investment in the US dollar. The policymakers remain concerned that some sectors in the economy are experiencing weakness and remain in severe situations due to the COVID-19, despite an optimistic outlook owing to government spending.
The growth differentials in the US and Japan weigh on the prospects of the yen.
As for now, investors are waiting for the Bank of Japan (BOJ) Summary of Opinions and the US Dallas Fed manufacturing Index to gain some fresh trading impetus.
