Bullish USD/JPY Momentum Continues To Abate Following Powell Testimony

USD/JPY holds a narrow range as Federal Reserve Chairman Jerome Powell warns of ‘crosscurrents’ while delivering the semi-annual testimony in front of Congress, and the limited reaction raises the risk for a larger pullback as the bullish momentum continues to abate.

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BULLISH USD/JPY MOMENTUM CONTINUES TO ABATE FOLLOWING POWELL TESTIMONY

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Recent comments from Chairman Powell suggest the Federal Open Market Committee (FOMC) will stick to the sidelines at the next interest rate decision on March 20 as ‘crosscurrents and conflicting signals’ cloud the economic outlook, and the central bank appears to be on track to endorse a wait-and-see approach throughout the first half of the year as ‘uncertainty is elevated around several unresolved government policy issues, including Brexit and ongoing trade negotiations.’

It seems as though the FOMC has long but abandoned the hiking-cycle amid the weakening outlook for global growth, and a growing number of Fed officials may vote in favor of tapering the $50B/month in quantitative tightening (QT) as the central bank head indicates that ‘the Committee can now evaluate the appropriate timing and approach for the end of balance sheet runoff.’

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It remains to be seen if Chairman Powell & Co. will adjust the Summary of Economic Projections (SEP) at the next meeting as the latest update show a longer-run interest rate of 2.75% to 3.00%, and a downward revision in the Fed forecast is likely to produce headwinds for the U.S. dollar as central bank officials drop the hawkish forward-guidance for monetary policy. With that said, fresh data prints coming out of the U.S. economy may drag on USD/JPY as the advance 4Q Gross Domestic Product (GDP) report is anticipated to show the growth rate narrowing to 2.3% from 3.4% per annum in the third-quarter of 2018, and Fed officials may continue to change their tune over the coming months amid signs of a slowing economy.

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