USD/JPY hangs in the balance of key US data

USD/JPY is flat near 137 the figure and within the day's range of between 136.47 and 137.91 while the greenback dips modestly from three-month highs reached earlier on Wednesday following Federal Reserve Chairman Jerome Powell on Tuesday.

The US Dollar index, DXY,  was reaching 105.88, the highest since Dec. 1 as the Fed chair surprised markets with a more hawkish rate outlook. Powell said that the Fed will likely need to raise interest rates more than expected in response to recent strong data and is prepared to move in larger steps if the "totality" of incoming information suggests tougher measures are needed to control inflation.

This has led the Fed funds futures markets to price in a 66% probability of a 50 basis-point hike at the Fed’s March 21-22 meeting, up from around 22% before Powell spoke on Tuesday. The rate is now expected to peak at 5.62% in September. ''Looking ahead, 25 bp hikes in May and June are priced in that would take Fed Funds to 5.50-5.75%, with nearly 30% odds of a last 25 bp hike in Q3 that would move the range up to 5.75-6.0%,'' analysts at Brown Brothers Harriman said.

''After all this, an easing cycle is still expected to begin in Q4, albeit at much lower odds.  Eventually, it should be totally and unequivocally priced out into 2024 during the next stage of Fed repricing. For now, we believe the uptrends in US yields and the dollar remain intact,'' the analysts added.

Looking ahead, investors are now focused on February jobs data in Nonfarm Payrolls that is due on Friday. Another 280k increase would be unambiguously strong following a 517k increase in January, analysts at Societe Generale said. ''There is room for potentially greater giveback on the January  increase, which was likely aided by warm weather. We see readings above a 150,000-175,000  threshold as strong, since over time such a pace would contribute to further declines in the unemployment rate.''