Dollar Rebounds, Yen Reverses Gains Amid Bond Rally
The dollar advanced versus all Group-of-10 peers, gaining traction from yen weakness as Japanese bonds rally sending yields lower.
The Bloomberg Dollar Spot Index rose 0.5%, heading for its best day in two weeks
Repricing in options markets extended, with traders less convinced that further deep losses are imminent
US durable goods and Conference Board consumer confidence came in higher-than-expected
Federal Reserve Bank of Minneapolis President Neel Kashkari argued for caution amid uncertainty caused by the trade war and the need to defend inflation expectations.
USD/JPY rose 1% to 144.25; Japanese super-long bond yields fell after the finance ministry sent a questionnaire to market participants regarding appropriate issuance amounts for government bonds, several people familiar with the matter said
Treasury yields also slumped, with those on the 30-year note dropping 11bps to 4.93%
The yen hit a day high earlier at 142.12 after Governor Kazuo Ueda indicated the Bank of Japan would raise interest rates further if the economy improves
Focus on an auction of 40-year bonds on Wednesday, supporting yen gamma in the front-end
“We see this morning’s sell-off in the Yen as offering better levels for longs, though added volatility stemming from moves in long-yields will likely continue, with tomorrow’s 40y JGB auction the next key event to watch,” wrote Goldman Sachs strategists Stuart Jenkins, Teresa Alves and Isabella Rosenberg
The yen was the worst performing Group-of-10 currency versus the dollar.
EUR/USD dropped 0.5% to 1.1335
France’s inflation rate dropped further below the European Central Bank’s 2% target, reaching a more than four-year low and adding to arguments that borrowing costs can be cut further
The European Union is seeking to accelerate trade talks with the US just six weeks before President Donald Trump’s threatened 50% tariffs come into effect
The FX effects of this are “complicated given the initial announcement of higher tariffs had hurt the dollar more than the euro,” wrote Societe Generale strategist Kit Juckes. “So, it’s not a great surprise that this morning sees the euro a little softer than it was at the end of last week”
GBP/USD fell 0.4% to 1.3513
UK food inflation nudged up in May to the highest level in a year, as British supermarkets battle higher operating costs stemming from the government’s revenue-raising budget
The sterling was the best performing Group-of-10 currency against the dollar Tuesday
USD/CAD rose 0.4% to 1.3796
AUD/USD fell 0.6% to 0.6445
NZD/USD fell 0.8% to 0.5949
Source : Bloomberg
