- 10-year US T-bond looks to add more than 2% on the day.
- US Dollar Index extends losses toward 97.
- FOMC’s Powell hints at a change in policy stance.
Supported by the decisive rebound witnessed in the 10-year US Treasury bond yield, the USD/JPY pair rose to a daily high of 108.35 in the early NA session but struggled to push higher as the broad USD weakness offset the positive impact of risk-on flows on the pair. As of writing, the pair was virtually unchanged on a daily basis at 108.06.
Following St. Louis Fed President Bullard’s dovish comments, which put the greenback under pressure on Monday, FOMC Chairman Powell gave a subtle hint toward a possible dovish shift in the policy outlook. “We are closely monitoring the implications of these developments for the U.S. economic outlook,” Powell said on Trump’s administration’s trade policy and added: “We will act as appropriate to sustain the expansion.” The fact that Powell didn’t the word “patient” caused markets to speculate a rate cut.
As the CME Group FedWatch Tool showed an 86% chance of a rate cut in September, the US Dollar Index tested the 97 mark for the first time since April 18. Although the index staged a modest recovery to 97.20 following the initial sell-off, it struggled to gather momentum and, once again, turned south. As of writing, the index was down 0.15% on a daily basis at 97.07.
On the other hand, all three major equity indexes in the U.S. are posting decisive gains today, reaffirming the positive risk sentiment that makes it difficult for the safe-haven JPY to continue to drag the pair lower. Additionally, after rising as much as 3% on a daily basis, the 10-year T-bond yield eased from highs but still looks to close the day with a daily gain of around 2%.
Technical levels to watch for
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