USD/JPY drops to weekly lows near 108.30 on falling US T-bond yields

Following a rally to a fresh two-month high above the 109 mark earlier today, the USD/JPY pair made a sharp U-turn and slumped to its lowest level in a week as the sharp fall witnessed in the US Treasury bond yields allowed the JPY to gather strength against its peers. As of writing, the pair was down 0.4% on the day at 108.30.

Although Fed Chairman Powell's remarks on the policy outlook yesterday caused investors to doubt another 25 basis points rate cut in September and allowed the US Dollar Index (DXY) to jump to its highest level in more than two years at 98.93, today's data from the US weighed on the Greenback.

Dismal PMI data hurts dollar

The ISM Manufacturing PMI in July fell to 51.2 from 51.7 and missed the market expectation of 52 today. The DXY erased a large part of its daily gains after the data and was last seen at 98.65, still adding 0.08% on the day. The data also seems to be weighing on the Treasury bond yields. At the moment, the 10-year references is losing more than 2% on a daily basis, keeping the bearish pressure on the pair intact.

Commenting on the data, "The drop was almost in full explained by a drop in both the production index and the employment index," said Nordea Markets' analyst Kjetil Olsen. "The more forward-looking new orders index was actually slightly up, and the new orders minus inventories series give hopes for a stabilisation  in the near term."

During the early trading hours of the Asian session on Friday, the Bank of Japan will release the minutes of its last monetary policy meeting. Later in the day, the labour market data from the US will be the last significant data release of the week. Investors expect the Nonfarm Payrolls (NFP) to come in at 164,000 in July following June's strong 224,000 reading.

Technical levels to watch for