FX analysis – USD rallies on hawkish Fed, JPY holds above 154

USD rallied in Tuesday’s session, with the US dollar Index hitting a 2024 high of 106.510 after hawkish Fed Chair Powell commentary where he noted recent data was showing a lack of further progress on inflation. Powell also added that if higher inflation persists the Fed can maintain current rate as long as needed. On data, building permits and housing starts came in beneath analyst expectations while industrial production was in line with forecasts but manufacturing output beat.

USDJPY moved higher for a 5^th straight session, with the pair closing the New York session at highs of 154.78. There was what appeared to be an intervention earlier in the US session with a steep 100 pip drop on no headlines that quickly retraced. This looked like a shot across the bow from the BoJ with market participants suspecting intervention and will likely strengthen expectations that 155.00 is the line in the sand for Japanese officials.