As Tokyo gets underway, the USD/JPY has fallen.
The US currency is under pressure as investors assess Powell’s less aggressive remarks.
The USD/JPY is weakening in Tokyo, with the rate falling from 110.02 to 109.85 so far.
The US dollar sank against practically all G10 currencies overnight as investors shifted away from long dollars after Federal Reserve Chairman Jerome Powell maintained that tightening conditions are still a long way off and that inflation is just temporary.
“Reaching the standard of considerable further improvement is still a ways off,” according to the testimony to Congress (courtesy of analysts at Westpac). Inflation has “significantly increased” and will continue to rise in the coming months, according to the latest update, but will be “temporarily boosted by base effects” as well as “strong demand in sectors where production bottlenecks or other supply constraints have limited production,” resulting in rapid price increases. As bottlenecks loosen, these impacts should partially reverse. He reiterated that while “conditions have continued to improve…there is still a long way to go” in the labor market.
As a result, investors flocked to US bonds, and key 2-year government bond yields plummeted to 0.22 percent, while 10-year government bond yields fell from 1.41 percent to 1.35 percent.
Stock markets reacted positively to the remarks, with the S&P 500 up 0.3 percent and the Dow Jones up 0.2 percent.
In terms of US data, the Producer Price Index rose 1.0 percent MoM to +7.3 percent YoY in June, beating expectations.
Meanwhile, the Federal Reserve Chair will testify before the Senate Banking Committee for the second time this year. Traders will also be paying attention to Chicago Fed President Evans, who will speak about the economy in the United States./n
