- USD/JPY rallied sharply and spiked to a more than one-month high during the early American session.
- Strong US CPI figures boosted US bond yields and provided a strong boost to the USD.
- Technical buying above the 115.70 and 116.00 area added to the momentum.
The pair USD/JPY caught fresh offers during the early American session and broke above the 116.00 level, hitting a more than 1-month high in reaction to stronger US CPI.
Data released by the US Bureau of Labor Statistics reported on Thursday showed the US headline CPI rose 0.6% in January versus 0.5% expected. Additionally, the annual rate jumped to a new multi-decade high and accelerated to 7.5% during the reported month. This was above consensus estimates that pointed to a rise to 7.3% from 7% recorded at the end of 2021.
Additional details revealed that the core CPI, which excludes food and energy prices, rose 6.0% from a year earlier versus 5.5% in December and 5.9% expected. The data raised market bets on a 50 bps Fed interest rate hike in March. This, in turn, pushed the 2-year US government bond yield, which is more sensitive to rate hike expectations, to the highest level since February 2020, around 1,434%.
Adding to this, the benchmark US 10-year note yield spiked closer to the 2.0% level, or the highest level since August 2019 reached earlier this week. This prompted aggressive short-covering around the US dollar and provided a strong boost to the USD/JPY pair. Momentum confirmed a bullish break through the 115.70 area and led some trading stops near the 116.00 round level.
A sustained break through the mentioned hurdle could already have set the stage for further gains and supports prospects for a move towards a test of the 2021 high around the 116.35 region. Some follow-on buying will be seen as a new trigger for bullish traders and will pave the way for an extension of the recent appreciation move witnessed since earlier this month.
Technical levels
Source: Fx Street
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