USD/JPY falls below 109.00 on US dollar sell-off after FOMC meeting

• DXY drops sharply on Fed’s outcome and points to further losses.  
• Higher equity prices in Wall Street, limited USD/JPY slide.  

The USD/JPY dropped from 109.50 to 108.80, the lowest since January 17 after the FOMC meeting and Powell’s press conference. During the las minutes it was able to find support and trimmed some losses, but the dominant tone remains tilted to the downside.  

As of writing trades at 108.95, down 40 pips for the day and 80 below the daily highs. Price is hovering around the 20-day moving average. Today’s losses could weaken the technical outlook for the US dollar. If the greenback regains levels on top of 109.30, it would remove some of the bearish pressure.  

The Federal Reserve kept rates unchanged as expected but it sounded more dovish than what market participants were looking for, leaving the US dollar vulnerable. The central bank moved to a “patient” stance and Powell mentioned that inflation pressures are muted. The FOMC is ready to adjust the balance sheet normalization program.  

“Taking it all together we are unlikely to see an interest rate rise in the first quarter, but we still think there is a decent chance of a move in June. If the strength of the US jobs market persists and wages keep rising the consumer side should help support growth and generate a little more inflation. Furthermore, if we can get some progress on US/China/EU trade relations that could help lift spirits, boosting business optimism, investment spending and the outlook for trade. So while the Fed is right to be patient for now, we still think they have more work to do“, said ING analysts.  

After the meeting, equity prices headed higher and limited the decline of the USD/JPY. The yen printed fresh lows across the board but then trimmed losses. Near the end of the session, the Dow Jones gains 1.75% and the Nasdaq 2.15%. US yields dropped further with the 10-year hitting 2-week lows at 2.69%.