USD/JPY Rallies to 6 Month Highs on Strong Inflation Data

The U.S. dollar continued to strengthen against the Japanese yen in early trading on Thursday, reaching fresh six month highs. On Wednesday USD/JPY rallied above the key psychological level of 112 for the first time since January 10th.

USD/JPY was boosted by Wednesday’s better than expected U.S. inflation data, increasing the probability that the Federal Reserve will raise interest rates four rate times this year instead of three. The next FOMC meeting is scheduled to begin on July 31st.

On Tuesday the Trump administration announced a list of tariffs of 10 percent on $200 billion in Chinese goods, escalating the trade war between the world’s two largest economies. Beijing immediately countered that it would respond with equal measures.

Both the Japanese yen and the U.S. dollar are favored as safe-haven investments, but the yen failed to get a lift from the risk-off sentiment. Analysts point to widening U.S. yield differentials with those in Japan and the strong U.S. stock market as drivers of the greenback’s strength.

Looking at the USD/JPY daily chart we can see that the 50 period simple moving average is poised to cross above the 200 period moving average. This is referred to as a Golden Cross and viewed as a strong bullish signal.