A widely anticipated release of U.S. Consumer inflation data caused the U.S. Dollar to stabilize in early European trade, but the Japanese yen rose in anticipation of the Bank of Japan meeting next week.
The Federal Reserve’s easing of interest rate increases and the expectation of further easing have put the dollar on the defensive since late last year, ending a rally that brought the currency to a 20-year high in September.
The focus is now firmly on the December U.S. CPI release, which is scheduled for release later in the session. Data showing inflation slipping back from 40-year highs has powered the expectation that the Fed will scale back its aggressive rate hikes.
In other news, the USD/JPY dropped 0.6% to 131.69 after a local report that the Bank of Japan could review its bond yield targeting policy at next week’s policy meeting, potentially taking additional steps to correct distortions in the yield curve.
However, the Japanese central bank surprised in December with a tweak to its bond yield control, and speculation has been growing that it will be forced to do something similar again as it faces severe inflationary pressures at home.