- USD/JPY has stabilized below 125.50 in the last few hours as traders digest comments from the Fed and US CPI on the day.
- The pair is sideways, having pulled back from previous levels above 125.50 after US yields fell.
The USD/JPY has stabilized at the 125.00 low in recent trading and is currently trading flat on the day, having pulled back from the previous high above 125.50 along with a pullback in US yields following US inflation data. Although the annual pace of headline consumer price inflation reached a four-decade high of 8.5%, slightly above expectations, core measures (particularly MoM) disappointed expectations, causing the market lowered some Fed tightening bets.
But the latest batch of comments from Fed Vice Chairman Lael Brainard suggests that while the Fed is relieved to see some early signs of a slowdown in core inflation, the bank remains committed to normalizing policy quickly. . Brainard discussed deciding on a balance sheet reduction plan in May for the runoff to begin in June, noting that normalizing politics to a significant degree by the end of the year remains the appropriate policy path.
Brainard’s comments helped the dollar regain its footing in recent trading and DXY rallied to multi-month highs in the 100.30 region. US yields have yet to recover to pre-US CPI levels, with the US 10-year Treasury yield still below 8 bps on the day, just above 2.70% so USD/JPY has not been able to recover above 125.50.
But USD/JPY bulls will probably remain very confident. More statements from the Fed during the rest of this week will likely reinforce Brainard’s message that the bank will press ahead with tightening plans. Meanwhile, US producer price inflation data released on Wednesday may still offer an upside surprise. Therefore, risks remain skewed to the upside for the pair.
Technical levels
Source: Fx Street
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