USD/JPY reclaims the 137.00 figure after Powell’s speech strengthens the US dollar

• USD/JPY edges higher by 0.56% on Friday amidst a downbeat market mood.
• Fed’s Powell: “Restoring price stability will likely require maintaining a restrictive policy stance for some time.”
• Money Market Futures odds of a 75 bps Fed rate hike ie at 56.5%.

The USD/JPY advances In the North American session, following hawkish remarks of Fed Chair Jerome Powell in the Jackson Hole Simposium, after the Fed’s favorite inflation gauge showed signs that prices are getting lower, meaning rate hikes are working.

The USD/JPY began trading near the day’s lows around 136.19, but in the last hour, the major seesawed around 136.20 – 137.34, past Powell’s remarks. At the time of writing, the USD/JPY is trading at 137.25, above its opening price, in a volatile session.

Summary of Powell’s remarks

The so-awaited Jerome Powell speech pointed out that the central bank will use its tools “forcefully” to bring supply and demand in balance. Powell welcomed July’s lower inflation readings but disregarded one month’s data and said they needed to see compelling evidence of slowing inflation.

The Fed Chair added that restoring price stability will take some time while emphasizing that the Fed needs to get to restrictive levels, to return inflation to the 2% target.

Worth noting that Powell’s speech did not give any forward guidance for the September meeting when Powell said that the bank would be data-dependant.

Powell added that the Federal funds rate at a long-run neutral estimate of 2.25% - 2.50% is “not a place to stop or pause.” Albeit mentioning that the Fed will slow the pace of rate hikes, he emphasized that restoring price stability would require keeping a restrictive policy for “some time.”

Elsewhere, money market futures expect the US Federal Reserve odds of going 75 bps, at 56.5% higher than 46.5% before Powell took the stand. Meanwhile, the greenback stages a comeback, as shown by the US Dollar Index, up by 0.18%, at 108.606.

US inflation lowered, while UoM Consumer Sentiment improved

Data-wise, the US economic docket featured the Fed’s favorite inflation gauge, headline, and core Personal Consumption Expenditures (PCE) price Indices for July. Headline PCE rose by 6.3% YoY, higher than the 6.2% estimated, while core PCE, which excludes volatile items, decelerates to 4.6% YoY vs. 4.7% forecast.

Meanwhile, the University of Michigan Consumer Sentiment for August’s final reading rose to 58.3, topping estimates of 55.2. Inflation expectation for a one-year horizon dropped to 4.8%

USD/JPY Key Technical Levels