- USD / JPY retreats amid the return of risk aversion, as the energy crisis intensifies.
- The US dollar retreats with Treasury yields, the optimism of the Fed continues to prop up the USD.
- USD / JPY remains at the mercy of yield dynamics and risk trends ahead of Powell.
USD / JPY retreats from two-month highs of 111.43, although it remains well above the 111.00 level as investors await testimony from Fed Chairman Jerome Powell for new trading opportunities.
The pair’s decline occurs as a result of a change in risk sentimentas European stocks suffer amid the intensifying energy crisis in the euro zone and China. Rising oil and gas prices have triggered an energy crisis in Europe, and governments warn of blackouts and factories being forced to close. On the other hand, China is struggling with power outages.
The worsening of the market mood has reactivated demand for US Treasuries, checking the rise in Treasury yields through the curve.
Meanwhile, the yen has found some support from the Japanese Prime Minister Yoshihide Suga’s confirmation of ending the state of emergency measures on September 30.
Earlier, USD / JPY rallied strongly, following the relentless rise in US yields amid the bullish shift from the Fed, with markets now pricing in a rate hike earlier than expected.
The latest upbeat comments from Fed officials have also lent support to yields.. The increase in US rates has caused a new advance in the US dollar, supporting the gains of the USD / JPY pair.
10-year Treasury yields rose to a three-month high of 1.55% before falling back to 1.53%, where it now falters.
Looking ahead, broader market sentiment and yield dynamics will continue to have a significant impact on USD / JPY.
At the time of writing, the USD / JPY pair is trading at 111.27, still up 0.26% on the day.
USD / JPY additional levels