USD/JPY eases from two-month highs near 111.45 amid worsening mood

• USD/JPY pulls back amid the return of risk-off trades, as dual-energy crisis intensifies.
• US dollar retreats with Treasury yields, hawkish Fedspeak still underpin.
• The pair at the mercy of the dynamics in yields, risk trends ahead of Powell.

USD/JPY is off the two-month highs of 111.43, although holds well above the 111.00 level, as investors look forward to Fed Chair Jerome Powell’s testimony for fresh trading insights.

The pullback in the spot comes in the wake of a turnaround in the risk sentiment, as the European stocks take a hit amid intensifying energy crisis in the Euro area and China. Soaring gas and oil prices have triggered an energy crisis in Europe, with governments warning of blackouts and factories being forced to shut. On the other hand, China struggles with power outages.

The worsening market mood has revived the demand for the US Treasuries, checking the surge in the Treasury yields across the curve.

Earlier on, USD/JPY rallied hard, tracking the relentless rise in the US yields amid Fed’s hawkish shift, with markets now pricing in a sooner-than-expected rate lift-off.

The latest hawkish comments from the Fed’s policymakers also lent support to the yields. The surge in the US rates, prompted a fresh advance in the US dollar, supporting the gains in the major.

The benchmark 10-year Treasury yields jumped to three-month highs of 1.55% before retreating to 1.53%, where it now wavers.

Looking ahead, the broader market sentiment and the dynamics in the yields will continue to have a significant impact on USD/JPY.

At the time of writing, USD/JPY is trading at 111.27, still adding 0.27% on the day.

USD/JPY: Additional levels to consider