USD/JPY surrenders intraday gains on softer US CPI, flat-lined around 104.60 area

• USD/JPY failed to capitalize on its attempted intraday recovery from two-week lows.
• Softer-than-expected US CPI report weighed on the USD and prompted fresh selling.
• A turnaround in the US bond yields also contributed to a modest pullback from highs.

The USD/JPY pair witnessed some selling during the early North American session and surrendered modest intraday gains to the 104.80-85 region post-US CPI. The pair was last seen trading just above mid-104.00s, nearly unchanged for the day.

Following an early dip to fresh two-week lows, around the 104.40 region, the pair witnessed a modest short-covering bounce and was supported by a combination of factors. The prevalent upbeat market mood undermined demand for the safe-haven Japanese yen and was seen as a key factor that extended some support to the USD/JPY pair.

The attempted recovery move, however, quickly ran out of the steam amid the emergence of some fresh selling around the greenback following the release of the US consumer inflation figures for January. Data published by the US Bureau of Labor Statistics showed that the headline CPI eased to 0.3% during the reported month from 0.4% previous.

Meanwhile, the disappointment came from the yearly print, which held steady at 1.4% as against consensus estimates pointing to a modest uptick to 1.5%. Adding to this, core CPI remained flat during the reported month as against 0.2% rise anticipated and fell to 1.4% YoY from 1.6% previous, again missing 1.5% anticipated by the market.

The softer readings led to a dramatic turnaround in the US Treasury bond yields, which, in turn, weighed on the greenback and prompted fresh selling around the USD/JPY pair. That said, expectations for a massive US fiscal spending plan could help limit the downside for the US bond yields and extend some support to the major.

With Wednesday's key data out of the way, the US bond yields will continue to play a key role in influencing the USD price dynamics. This, along with the broader market risk sentiment, will also be looked upon to grab some short-term trading opportunities around the USD/JPY pair.

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