- USD/JPY advanced 0.56% on Friday amid a bear market environment.
- Fed’s Powell: “Restoring price stability will likely require maintaining a restrictive policy stance for some time”
- The money market futures odds of a 75 basis point Fed rate hike stand at 56.5%.
The USD/JPY advances in the American session, following aggressive comments by Fed Chairman Jerome Powell at the Jackson Hole Symposium, after the Fed’s favorite inflation gauge showed signs that prices are falling, meaning that rate hikes are working.
USD/JPY started trading near the day’s lows around 136.19, but in the last hour, the main currency ranged between 136.20 and 137.34, following Powell’s remarks. At the time of writing, USD/JPY is trading at 137.25, above its opening price, in a volatile session.
Summary of Powell’s statements
Jerome Powell’s long-awaited speech signaled that the central bank will use its tools “hard” to balance supply and demand. Powell welcomed the lower inflation readings for July, but disregarded a month’s worth of data and said they needed to see convincing evidence of slowing inflation.
The Fed Chairman added that restoring price stability will take some time, while stressing that the Fed needs to get to tightening levels, to return inflation to the 2% target.
Notably, Powell’s speech did not give any guidance ahead of the September meeting, when he said the bank would depend on the data.
Powell added that the fed funds rate at a neutral long-term estimate of 2.25%-2.50% “is not a place to stop or pause.” Although he mentioned that the Fed will slow the pace of rate hikes, he stressed that restoring price stability will require maintaining a restrictive policy for “some time.”
Elsewhere, money market futures expect the US Federal Reserve to rise 75 basis points, up 56.5% from 46.5% before Powell took the stand. Meanwhile, the greenback staged a comeback, as the US dollar index shows, rising 0.18% to 108.606.
US inflation declines as UoM consumer sentiment improves
In terms of data, the US economic docket included the Federal Reserve’s favorite inflation gauge, the headline and core Personal Consumption Expenditure (PCE) price indices for July. Headline PCE rose 6.3% yoy, above the 6.2% forecast, while core PCE, which excludes volatile items, slowed to 4.6% yoy vs. 4.7% forecast.
Elsewhere, the final reading of consumer sentiment from the University of Michigan for August rose to 58.3, beating estimates of 55.2. Inflation expectations one year ahead fell to 4.8%.
Key USD/JPY Technical Levels
Source: Fx Street
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