Yen Strengthens Rally Following the Plunge in German Yield

Following the significant drop in the benchmark German yield, the yen extended its rally in the European session. However, as the markets start the US session, they are fighting to extend their gains. Overall, markets are mixed, as investors are likely to be cautious ahead of the FOMC’s policy meeting tomorrow. As of today, the Australian dollar is the worst-performing currency following the RBA selloff, followed by the New Zealand dollar and the Swiss franc. The Yen, on the other hand, is the most powerful currency, followed by the Dollar and then the Euro.

Meanwhile, the USD/JPY pair is down slightly so far on Tuesday, after being rejected once above the 114.00 barriers. As US Treasury yields resume their recent negative trend ahead of the important Fed meeting, the spot snapped its two-day uptrend, dropping dramatically from eight-day highs of 114.44. The pain in the main currencies is exacerbated by the US dollar’s decline amid repositioning.

Germany’s manufacturing PMI ended at 57.8 in October, up from 58.4 in September, the lowest in nine months. Markit said material shortages are holding back release and new orders. A sharp rise in production costs has led to a record rise in factory gate fees. As optimism weakened, there was a further slowdown in job creation.
France’s manufacturing PMI ended at 53.6 in October, down from 55.0 in September, the lowest level since January. Markit said production was down as firms struggled to get the materials they needed. Demand conditions showed signs of easing amid supply constraints. Lead times have lengthened at near-record rates, and cost inflation hit a ten-year high.

The Eurozone Manufacturing PMI ended at 58.3 in October, slightly below September’s 58.6. But this is still the lowest level since February. The indicators of individual states remained generally high: the Netherlands – 62.5, Ireland – 62.1, Italy – 61.1, Austria – 60.0, Greece – 58.9, Germany – 57.8. Spain – 57.4, France – 53.6.

Chris Williamson, the chief economist at IHS Markit, said: “Eurozone producers reported a deteriorating supply chain situation in October, which sharply curtailed output growth for the month … This deficit … pushed inflationary pressures to new highs in the study, raising additional questions how transient the recent surge in inflation will be.

Business confidence also eased slightly to an annual low in October as more manufacturers are concerned about supply and the impact of rising costs and prices, further indicating that manufacturers will face difficult months ahead.”