Treasury yields have reacted accordingly, with the 10-year yield down 6 basis points to 3.938% and the 2-year yield easing by 2 basis points to 4.024%. This reflects the market’s reassessment of the Fed’s future rate path based on the resilience of the labor market.
Global Currency Movements and Risk Sentiment
The U.S. dollar held steady against the Japanese yen after a three-day rebound, with USD/JPY trading at 147.175, marking a 0.5% weekly gain. The yen, along with the Swiss franc, remains near one-week lows as global risk sentiment improves, evidenced by gains in Asian and European equity markets. In contrast, risk-sensitive currencies like the Australian dollar and British pound edged higher.
Despite the yen’s recent strength, driven by the unwinding of short positions following a surprise rate hike by the Bank of Japan, market participants remain cautious. Commodity Futures Trading Commission data due later today may provide further insights into the extent of yen buying that has taken place.
Market Forecast
The U.S. Dollar Index’s recent pullback suggests potential consolidation in the near term, particularly as it struggles to break through the 103.480 resistance level. However, with U.S. Treasury yields stabilizing and labor market data supporting a less aggressive Fed rate cut, the dollar may find renewed support. Traders should watch upcoming inflation data, particularly Tuesday’s core producer price index, which could influence the Fed’s policy and the dollar’s direction. For now, a cautious bullish outlook is warranted, contingent on yields maintaining current levels.
