USD/JPY consolidates Thursday gains near 107 as focus shifts to NFP, Powell

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  • Markets stay quiet on Friday ahead of key US data.
  • 10-year US Treasury bond yield adds more than 2% following Thursday’s rally.
  • FOMC Chairman Powell to talk about economy and interest rate policy later.

Boosted by rising hopes of the US and China preventing further escalation of the trade conflict by engaging in the next round of face-to-face talks in Washington next month, the USD/JPY pair rose to its highest level since early August at 107.22 on Thursday. With the trading action turning subdued ahead of the key US labour market report and FOMC Chairman Powell speech, the pair is spending the last day of the week in a very tight range near the 107 handle.

Upsurge in US T-bond yields lift USD/JPY higher

The upbeat market sentiment on Thursday allowed the 10-year US Treasury bond yield to post one of its strongest daily percentage increase and fueled the positively-correlated pair’s rally. After closing the day more than 6% higher, the 10-year T-bond yield continues to push higher and was last up 2% on the day while the S&P 500 Futures is adding 0.4%, both suggesting that risk-on flows continue to dominate the market action.

However, investors seem to be staying on the sidelines while waiting for the US Bureau of Labor Statistics to publish its Nonfarm Payrolls report for August. Additionally, FOMC Chairman Jerome Powell will be speaking about the economic and monetary policy outlook in Zurich on Friday.

The fact that this will be Powell’s last appearance ahead of the September 17-18 FOMC meeting suggests that he could be providing hints about a possible policy move in order to prevent markets from reacting sharply to a possible change in the policy rate.

Previewing today’s events, “The key action today is all about US payrolls, where the expectation is 160K, similar to last month’s 164K, and average earnings at 0.3% m/m, 3.0% y/y. If so, there is really nothing new there to see,” said Rabobank analysts.

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