- USD/JPY corrected from a fresh 24-year high and came under pressure from a combination of factors.
- Speculation that the authorities could intervene, the risk-off mood boosted the JPY as a safe haven.
- The lack of aggressive signals from Powell weighed on the dollar and added to the selling bias.
The pair USD/JPY saw an intraday pullback from 24-year highs around the 136.70 area hit earlier this Wednesday, paring back some of the previous day’s strong gains. The intraday drop extended throughout the North American session and dragged the pair to a fresh daily low, around the 135.70-135.65 area.
Market traders turned cautious amid speculation that any further sharp depreciation of the Japanese yen could force some form of practical intervention. This, coupled with a new wave of risk aversion globally, boosted the yen as a safe haven and prompted traders to take some profit on their bullish bets on the USD/JPY pair.
The flow of risk aversion caused a sharp pullback in US Treasury yields, which did not help the dollar retain its intraday gains. The dollar was further pressured by less aggressive comments from Philadelphia Fed President Patrick Harker, who said that if demand softens faster than expected, a 50 basis point rate hike for July could be good. .
Separately, Fed Chairman Jerome Powell, during his testimony before the Senate Banking Committee, said that the US central bank is firmly committed to reducing inflation. Powell further added that the pace of future increases will depend on incoming data, which suggests real GDP rebounded in the current quarter and consumer spending remains strong.
However, Powell’s comments did not provide any clues as to the pace of the Fed’s tightening policy, which could keep dollar bulls on the defensive. That said, a large divergence in the monetary policy stance taken by the Fed and the (dovish) Bank of Japan should act as a tailwind for the USD/JPY pair, warranting bearish traders’ caution.
Technical levels
Source: Fx Street
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