- USD/JPY has moved lower as Tokyo gets going.
- The US dollar remains pressured as markets weigh Powell's less hawkish comments.
USD/JPY is soft in Tokyo with the price sliding from 110.02 to a low of 109.85 so far and counting.
The US dollar fell against almost all G10 currencies overnight as the markets switched from long dollars when the Federal Reserve's chairman Jerome Powel's reiterated that conditions for tightening remain distant and that the rise in inflation is considered to be transitory.
Key notes from the testimony to Congress (courtesy of analysts at Westpac):
"Reaching the standard of substantial further progress is still a ways off". Inflation has "increased notably," acknowledged the recent update, and will remain elevated in coming months, but "temporarily boosted by base effects" as well as from "strong demand in sectors where production bottlenecks or other supply constraints have limited production" which have led to rapid price increases. These effects should partially reverse as bottlenecks unwind. On the labour market, he repeated that while "conditions have continued to improve...there is still a long way to go."
As a result, the markets bought into US bonds and the critical 2-year government bond yields dropped to 0.22%, and the 10-year government bond yields fell from 1.41% to 1.35%.
In stocks, equity markets reacted positively to the comments and the S&P 500 lifted 0.3% and the Dow Jones gained 0.2%.
As for US data, the US Producer Price Index in June was above consensus forecasts, rising 1.0% MoM to +7.3% YoY.
Meanwhile, the Federal Reserve Chair will deliver his second of his semi-annual testimonies, this time to the Senate Banking Committee. traders will also be tuning into the Chicago Fed President Evans who will discuss the US economy.
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