USD/JPY trades with modest losses, remains below 110.00 mark amid weaker USD

• USD/JPY faced rejection near the key 110.00 psychological mark and edged lower on Tuesday.
• Uncertainty over the Fed’s next policy move and declining US bond yields weighed on the USD.
• Weaker Chinese data, COVID-19 woes benefitted the safe-haven JPY and exerted some pressure.

The USD/JPY pair edged lower through the first half of the trading action on Tuesday and refreshed daily lows, around the 109.80 region heading into the European session.

The pair struggled to capitalize on the overnight bounce from multi-day lows, instead faced rejection near the key 110.00 psychological mark and was pressured by a combination of factors. The US dollar dropped to two-week lows amid fading hopes for an earlier than expected Fed lift-off. This, along with reviving demand for the safe-haven Japanese yen, exerted some pressure on the USD/JPY pair.

During the highly anticipated speech at the Jackson Hole Symposium, Fed Chair Jerome Powell reassured the markets that the Fed is in no hurry to raise interest rates. The repricing of the likely timing of the Fed's move to tighten its monetary policy led to some follow-through decline in the US Treasury bond yields. This was seen as a key factor that continued undermining the greenback.

Meanwhile, investors remain worried about the potential fallout from the fast-spreading Delta variant of the coronavirus. The concerns were further fueled by disappointing Chinese data released earlier this Tuesday. According to the official report, manufacturing sector activity expanded at a slightly slower pace while business activity in the services sector contracted sharply in August.

This, in turn, drove some haven flows towards the JPY, though a generally positive tone around the equity markets might help limit any deeper losses for the USD/JPY pair. This makes it prudent to wait for some strong follow-through selling before positioning for an extension of last week's sharp pullback from a resistance marked the top boundary of a short-term trading range.

Market participants now look forward to the US economic docket, featuring the releases of Chicago PMI and the Conference Board's Consumer Confidence Index later during the early North American session. Traders might further take cues from the US bond yields and the broader market risk sentiment to grab some short-term opportunities around the USD/JPY pair.

Technical levels to watch