USD/JPY slumps to 136.50 after Fed’s 75 basis point hike

• The US Federal Reserve has raised interest rates by 75 basis points.
• The central bank acknowledged that spending and production “smoothed”.
• USD/JPY – Dropped to 136.80 in reaction to the headline, but remains volatile just below the 20-day EMA.

The USD/JPY fell during the American session after the Federal Reserve raised the Federal Funds Rate (FFR) by 75 basis points, in line with expectations. The Fed leaned slightly to the dovish side as Powell and Co acknowledged spending and output softened while opening the door for further tightening. At the time of this writing, USD/JPY is trading with volatility in the range of 136.50-137.30.

FOMC Monetary Policy Statement Summary

In the FOMC statement, policymakers admitted that output and spending had softened, while the labor market remained tight. The first paragraph of the statement came across as dovish in tone as USD/JPY moved slightly higher while US bond yields fell.

As for inflation, Fed officials noted that inflation remains high and widened. The central bank said the war between Russia and Ukraine created further upward pressure on already high inflation, while the central bank made a “strong commitment” to bring inflation back to its 2% target.

In the meantime, the Fed will continue to shrink its balance sheet, as envisioned in the Fed’s Balance Sheet Reduction Plans, released in May.

USD/JPY Market reaction

USD/JPY fell below 137.00, reaching as high as 136.83 before rallying towards 137.46. However, since then, USD/JPY has been falling towards 136.60 as Fed Chairman Jerome Powell has started the Q&A session, so traders could brace for volatile swings until late in the week. the press conference.

Key USD/JPY Technical Levels