USD/JPY struggles near mid-109.00s, over one-week lows ahead of Powell’s speech

The USD/JPY pair maintained its offered tone through the mid-European session and was last seen hovering around mid-109.00s, just above one-and-half-week lows.

The pair failed to capitalize on the previous day's modest bounce and faced rejection near the key 110.00 psychological mark amid some renewed US dollar selling bias. Bearish traders further took cues from the recent sharp pullback in the US Treasury bond yields and a cautious mood around the equity markets, which tends to benefit the safe-haven Japanese yen.

Despite the negative factors, the downside seems limited amid the prospects for a relatively faster US economic recovery from the pandemic, thanks to the impressive pace of coronavirus vaccinations. This, along with US President Joe Biden's over $2 trillion infrastructure spending plan, has been fueling speculations about a possible uptick in US inflation.

This, in turn, raised doubts that the Fed will retain ultra-low interest rates for a longer period. Wednesday's FOMC meeting minutes reiterated the Fed's commitment to keeping interest rates low and forced investors to reassess their expectations. That said, the markets have been betting on an earlier than anticipated policy tightening amid the optimistic US economic outlook.

Hence, the focus now shifts to Fed Chair Jerome Powell's scheduled speech later during the US session. His comments will be closely scrutinized for fresh clues about the policy outlook, which will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the USD/JPY pair.

In the meantime, Thursday's US economic docket – featuring the only release of the usual Initial Weekly Jobless Claims – will be looked upon for some impetus during the early North American session. Apart from this, the broader market risk sentiment and the US bond yields would further contribute to produce some trading opportunities around the USD/JPY pair.

Technical levels to watch