Yen to USD Rate Moves 3 Cents, As FED’s Powell Confirms Rate Cuts

The yen to USD rate has made some large moves worth 3 cents in the last 24 hours. One of the reasons is the testimony from the FED chairman Jerome Powell at the US Congress, where he gives insight into the economy, inflation, and monetary policy projections. Yesterday, Powell’s testimony did not introduce any new information beyond what the Federal Reserve has been communicating in the last two months. However today he’s mentioning rate cuts, confirming that they’re on the way, which has sent USD/JPY diving to 147.50s.

USD/JPY has turned quite bearish, falling around 300 pips from yesterday, however, the higher Average Cash Earnings figures from Japan for February are also playing a major role. This forex pair fell to 147.57 earlier, but has pulled back up just above 158 now, where we decided to open a sell forex signal.

Minneapolis FED Neil Kashkari Comments

We also had other FED members speaking yesterday, such as Kashkari who said that rates might stay higher for longer. Neel Kashkari, of the Minneapolis FED, expressed his views on monetary policy saying that the base case scenario does not anticipate any further rate hikes in the near future.

If inflation persists, the Fed’s response would be to maintain the current interest rate for a longer period. However, if inflation were to flare up again, Kashkari suggests that this could justify considering a rate hike. Kashkari also questions the rationale behind cutting rates if the economy continues to exhibit signs of robustness and health

Jerome Powell’s Comments from the Testimony at Congress

• If the economy performs as projected, we believe that gradually eliminating restrictive policy measures will begin this year.
• Data-Driven Approach: Powell emphasized the importance of gathering more data to build confidence in inflation trends before considering rate cuts.
• Rate Cut Timing: The timing of rate cuts will be determined by incoming economic data, and the number of cuts this year will depend on the performance of the economy.
• Economic Growth: Powell acknowledges solid signs of growth in the economy and expects this growth to continue.
• Inflation Outlook: While not expecting better inflation readings, Powell emphasizes the need for more consistent inflation trends to support rate cut decisions.
• Likelihood of Rate Cuts: It is likely that rate cuts will begin at some point this year, but Powell stresses that the Fed does not expect to cut rates until there is greater confidence in inflation moving toward the 2% target.
• Peak Policy Rate: The policy rate is likely at its peak for the current cycle, indicating a potential shift toward a more accommodative monetary policy stance.
• Assessment of Risks: The Fed will carefully assess incoming data, the evolving economic outlook, and the balance of risks when making monetary policy decisions.
• Labor Market Conditions: The labor market remains relatively tight, with labor demand exceeding supply, although nominal wage growth has been easing.
• Dual Mandate: Risks to achieving the Fed’s dual mandate of maximum employment and stable prices are coming into better balance, with inflation above 2% but easing substantially.

Jerome Powell’s congressional testimony, which reiterated the Federal Reserve’s stance on rate cuts, has influenced the dollar’s movement. The market is particularly sensitive to economic data, as evidenced by today’s reaction to the slightly lower-than-expected ADP employment figures. This data-dependent approach underscores the importance of upcoming economic reports, with the non-farm payroll report scheduled for release on Friday. Traders are closely monitoring these indicators for insights into the Fed’s future monetary policy decisions.

USD/JPY Live Chart