USD/JPY recovers intraday losses as the US dollar struggles to move higher

• USD/JPY pars intraday losses and recovers above 148.00 amid firm US dollar.
• Investors shift focus to US inflation data for September.
• A drop in total household spending in Japan would dampen the BoJ’s bets on rate hikes.

USD/JPY recovers its intraday losses and returns to the daily high of 148.20 in the North American session on Tuesday. Major gains as the US dollar (USD) struggles to extend its rally. The U.S. Dollar Index (DXY), which tracks the greenback against six major currencies, is holding on to gains near a seven-week high of 102.50.

The US dollar’s performance remained firm as market expectations for the Federal Reserve (Fed) to deliver another larger-than-usual 50 basis point (bps) interest rate cut in November eased.

According to the CME FedWatch tool, traders have revised the Federal Funds rate for November and see a 25 bps rate cut that will push interest rates to 4.50%-4.75% after the release of the Nonfarm Payrolls (NFP) report for September. Employment data showed that job demand remained robust, the unemployment rate decelerated and wage growth remained strong.

Going forward, investors will pay close attention to US consumer price index (CPI) data for September, which will be released on Thursday. Economists expect the core CPI – which excludes volatile food and energy prices – to have risen steadily by 3.2%. Headline annual inflation is expected to ease further to 2.3% from 2.5% in August.

The impact of inflation is expected to be light on Fed rate cut expectations as officials are more focused on reviving consumer spending and job growth.

On the Tokyo front, overall household spending fell 1.9 percent in August, slower than expectations for a 2.6 percent contraction. In July, the measure of consumer spending rose by just 0.1%. This is expected to dampen expectations of more rate hikes from the Bank of Japan (BoJ) in the final quarter of the year.