USD/JPY retreats from three-week high as Powell's remarks amplify September rate cut bets

• USD/JPY drops nearly 1% to 146.66 as traders react to Powell's Jackson Hole remarks, retreating from an intraday high of 148.78.
• Fed Chair Jerome Powell highlighted downside risks to jobs and uncertainty from higher tariffs, keeping a cautious but flexible policy stance.
• Markets sharply increased Fed rate cut bets; CME FedWatch now shows 90% probability of a 25 bps September cut, up from 70% earlier.

The Japanese Yen (JPY) advanced strongly against the US Dollar (USD) on Friday, with USD/JPY retreating from an intraday high of 148.78 to trade near 146.66, down almost 1% on the day. The pullback marks a reversal from the pair's strongest level in three weeks, as investors unwound US Dollar positions following Federal Reserve (Fed) Chair Jerome Powell's cautious remarks at the Jackson Hole Symposium.

Powell's address at Jackson Hole fueled speculation that the Fed is preparing to recalibrate monetary policy, as he acknowledged rising downside risks to employment and flagged uncertainty from higher tariffs. While he avoided committing to a September move, his balanced tone prompted markets to push rate cut expectations sharply higher, sending Treasury yields lower and triggering a broad US Dollar selloff.

The shift in expectations was reflected in the CME FedWatch Tool, which now shows a 90% probability of a 25 basis point rate cut in September, up from around 70% earlier in the day.

The repricing sparked heavy US Dollar selling, with the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, retreating from a two-week high of 98.83. At the time of writing, the index is trading near 97.75, erasing all the gains registered earlier this week.