Home Business News US policy expectations drive forex market

The US dollar could continue its rebound after experiencing its most significant drop in a year on Tuesday. This decline was prompted by cooler U.S. inflation data, which has strengthened the conviction among investors that the Federal Reserve may refrain from raising interest rates again.

Meanwhile, expectations that the Federal Reserve could cut rates in May next year have increased. The release of retail sales data and the Producer Price Index (PPI) on Tuesday fueled some volatility. Stronger-than-expected retail sales figures boosted the dollar’s rebound.

Although the Japanese yen gained against the US dollar on Tuesday after weaker-than-expected US inflation, rate differentials could continue to weigh on the yen overall.

Lower-than-expected Japanese GDP growth figures could further complicate the Bank of Japan’s efforts to transition away from its long-standing ultra-loose monetary policy, which could exacerbate the yen’s performance.

However, the possibility of an intervention from the Bank of Japan to support the yen and the potential for lower yields in the US over time could limit its losses.

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