USD/JPY climbs above 142.00 as US Dollar stays firm, Fed Powell’s testimony eyed

• USD/JPY has scaled strongly above 142.00 as the USD Index has remained firm.
• Investors are keenly focusing on whether Fed Powell will stick to its prior guidance of pushing interest rates further or to remain data-dependent.
• It seems that the consistent ultra-dovish interest rate policy by the BoJ is doing justice with its job.

The USD/JPY pair has quickly jumped above 142.00 as the US Dollar has remained firm in the European session. Strength in the US Dollar is coming from caution in the market participants stemming ahead of Federal Reserve (Fed) chair Jerome Powell’s testimony.

S&P500 futures have recovered their entire losses posted in Asia and have turned positive, portraying a decent recovery in the risk appetite of the market participants. Economists at HSBC believe that investors should prepare for some consolidation as valuations have risen, and the potential of further Fed tightening may cut into future earnings estimates and valuations in the short term. However, we feel the Fed is closer to the end of its monetary policy tightening cycle, and this should bode well for US equities.

The US Dollar Index (DXY) is struggling in stretching its recovery above 102.60 as the market has turned baffled about Jerome Powell’s guidance. Investors are keenly focusing on whether Jerome Powell will stick to its prior guidance of pushing interest rates further by 50 basis points (bps) this year or remain data-dependent.

Meanwhile, the Japanese Yen is going to dance to the tunes of Consumer Price Index (CPI) data (May), which will release on Friday. As per the preliminary report, annualized headline CPI is seen accelerating to .1% vs. the prior release of 3.5%. Core inflation that excludes the impact of oil and food prices is seen climbing to 4.4% against the former release of 4.1%.

It seems that the consistent ultra-dovish interest rate policy by the Bank of Japan (BoJ) is doing justice to its job. BoJ Governor Kazuo Ueda has cleared that wages and domestic demand are needed to elevate further to grow inflation domestically.