The US Yields Collapse Propels The USD/JPY Currency Pair


The Japanese Yen performed better than the other currencies through the Asian session today as the fallout from Federal Reserve Chair Jerome Powell’s commentary resonates through markets.

He indicated that the Fed might slow their hikes size, but not the scope. The market interpreted the remarks as a dovish tilt, with higher equity indices, Treasury yields tumbling lower, and the US Dollar pummeled.

The Dow Jones gained 2.18%, the S&P added 3.09%, and the Nasdaq rallied an astonishing 4.41%. The S&P 500 closed above the 200-day simple moving average (SMA) for the first time since April.

Treasury yields in the curve’s 2- to 10-year part dropped around 15 basis points. The 1-year note is maintained. For USD/JPY, the collapse in US yields appears to be a driving force limiting the currency pair.

Simultaneously, market-priced inflation expectations dropped beyond the 2-year tenor, which saw real yields slide. The 10-year real yield dropped 23 basis points to undermine the ‘big dollar further.’

Forward-looking real yields are something St. Lois Fed President James Bullard recognized earlier in the week as an instrument that he is focused on in terms of monitoring inflation expectations.

All stock market indices are in the green, with Hong Kong’s Hang Seng index leading the way in Asia today.

Crude oil benefitted from the weaker US Dollar in the US Session but has relaxed through Asia today. The WTI futures contract stays above US$ 80 bbl, while the Brent contract is below US$ 87 bbl.

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