USD/JPY Prices Hike as Markets React to Fed Chair's Speech

The USD/JPY pair has seen a sharp increase in pricing for a Fed rate hike this year, following a speech by Fed Chair Kevin Warsh. The market reaction was enough to restore some of the Fed's inflation-fighting credibility, with Fed funds futures now pricing around 34.5 basis points of hikes by year-end.

The week ahead will be dominated by labour market data, including non-farm payrolls for August on Friday. While markets have been preconditioned to react to the payrolls figure, a combination of another soft payrolls report and rising unemployment would raise questions over whether the Fed should be paying greater attention to the maximum employment side of its dual mandate.

Historically, when the Fed has started hiking after an extended pause following an easing cycle, it has rarely been a one-and-done move. In six out of seven instances since 1982, the first hike was followed by at least one more move.