USD/JPY drops to 108.20 pressured by falling US T-bond yields

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  • 10-year US T-bond yield drops more than 3% on Tuesday.
  • US Dollar Index climbs to 97.70 area ahead of housing data.
  • ECB’s Draghi says they may need to ease policy if inflation didn’t move toward the target.

The USD/JPY pair came under pressure on Tuesday as the sour market mood boosted the demand for traditional safe havens such as the JPY. As of writing, the pair was trading at 108.22, losing 0.32% on a daily basis.

European Central Bank President Draghi’s dovish shift today weighed heavily on the yields of German Treasury bond yields and caused the US 10-year T-bond yield, which has a strong correlation with the USD/JPY pair, to turn south and fall sharply. At the moment, the 10-year reference is at its lowest level since September 2017 at 2.017%, erasing more than 3% on a daily basis.

Draghi today said that the bank would need to ease policy if inflation didn’t move toward their target. Moreover, Bloomberg reported that the ECB’s preferred tool for stimulus was rate cuts. 

On the other hand, the selling pressure surrounding the major European currencies allowed the greenback to outperform its rivals with the US Dollar Index climbing to 97.70 area and helped the pair limit its losses for the time being. Later in the session, housing starts and building permits data from the U.S. will be looked upon for fresh impetus.

Meanwhile, the dovish shift in Draghi’s tone allowed major European equity indexes to gain traction and now the S&P 500 Futures is rising 0.7% on the day to suggest a positive start in Wall Street, which could help the risk-sentiment turn positive in the second half of the day.

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