Dollar Takes a Breather, Yen Rises in Response to Falling Stock and Yields

Following last week’s big advances, the dollar is likely to enter some minor consolidations. There is no sign of a bottom, no sign of a topping, and no sign of a long-term pullback. The yen is rising sharply today as risk aversion dominates the financial markets. In Asia, the US 10-year yield has fallen below the 1.4 handles, and we’ll see if the decline continues. However, the focus of the market is shifting away from AUD and NZD and toward CAD.

The USD/JPY pair started the new week on Sunday under heavy bearish pressure, dropping to its lowest level in a week at 109.71, after closing in the positive region last week. The pair, on the other hand, regained traction in the second half of the day and climbed into positive territory. At the time of writing, USD/JPY was trading at 110.26, up 0.1 percent on the day.

Later in the day, the broad-based USD weakness and falling US Treasury bond yields weighed heavily on USD/JPY. The US Dollar Index, which gained 2% last week, dropped below 92.00 on Monday and the benchmark 10-year US Treasury bond yield touched its lowest level since late February at 1.354%. There won’t be any high-tier data releases from Japan on Tuesday and USD/JPY is likely to continue to react to fluctuations in T-bond yields.

Dollar Slips From Highs Yet Stay as an Instrument of Value

In currency markets, the US dollar’s near 2-percentage-point gain following the Fed meeting slowed on Monday, bringing some relief to its battered peers. The dollar index fell slightly from two-month highs on Friday, while the euro and the pound both gained 0.2 percent. In contrast to the optimistic indications from US market futures, the safe-haven yen and Swiss franc were mixed, implying a limited rise in risk appetite.

On Monday, the EUR/USD is gently climbing, but the overall situation in the major currency pair hasn’t altered – the “dollar” stays as an instrument of value among market participants. The dollar owes it to the Fed’s June meeting minutes, which indicated two possible rate hikes before the end of 2023. Because it came sooner than expected, this news bolstered the value of the US dollar.

Furthermore, St. Louis Federal Reserve Bank President James Bullard stated on Friday that the changes in the regulator’s tone were a logical response to the present economic growth and inflation increase. According to him, the country is still healing from the coronavirus outbreak, therefore everything that is occurring to it is perfectly natural.