USD/JPY jumps to near 148.50 ahead of US inflation data

• USD/JPY gains sharply to near 148.50 ahead of the US inflation data for July.
• Traders are confident that the Fed will cut interest rates next month.
• Investors will closely monitor Japan's GDP data.

The USD/JPY pair extends its winning streak for the third trading day on Tuesday and advances to near 148.50 during the European trading session. The asset strengthens ahead of the United States (US) Consumer Price Index (CPI) data for July, which will be published at 12:30 GMT.

Investors will pay close attention to the inflation report to know whether the impact of tariffs, introduced by US President Donald Trump, continued to flow into prices. June's CPI report showed that prices of goods accelerated that are largely imported in the economy.

Economists expect the US headline inflation to have grown at a faster pace of 2.8% on year, against 2.7% increase in June. In the same period, the core CPI - which excludes volatile food and energy prices - rose by 3.0%, faster than the prior reading of 2.9%.

Signs of accelerating price pressures would force traders to reassess bets supporting interest rate cuts by the Federal Reserve (Fed) for the September monetary policy meeting. According to the CME FedWatch tool, there is an 82% chance that the Fed will cut Federal Funds Rate by 25 basis points (bps) to 4.00%-4.25%.

Meanwhile, the Japanese Yen (JPY) underperforms its peers as investors doubt that the Bank of Japan (BoJ) will raise interest rates again in the remainder of the year. BoJ Summary of Opinions showed last week that officials are concerned regarding global trade risk due to the imposition of tariffs by the US.

Going forward, investors will focus on the preliminary Q2 Gross Domestic Product (GDP) data, which will be published on Friday.