The US Dollar Index has continued to trade at lower levels after breaking back below support from the 200-day moving average at just above 92.400 on Tuesday. In the FX space, the USD/JPY pair is set to be the pair most vulnerable to lower US Treasury yields, Lee Hardman, Currency Analyst at MUFG Bank, reports.
See: USD/JPY to march forward to 112.50 in the second quarter – Credit Suisse
Reversal in FX price action as LT yields lose upward momentum
“The trigger for the reversal in the FX market appears to have come from the bond market. The 10-year US Treasury bond yield has moved further below the peak from the end of last month at 1.77% and fell to a low yesterday of 1.65%. The move higher in long-term yields has lost upward momentum since the middle of last month.”
“Our own correlation analysis reveals that US dollar performance remained negatively correlated to global equity market performance over the past month. Recent underperformance of the US dollar, Canadian dollar and pound is more likely yield driven though as all had benefited from domestic yields moving higher more than elsewhere in Q1.”
“At the current juncture, we are more inclined to view the recent correction lower in yields as temporary although the loss of upward momentum is encouraging and suggests that financial markets are now better priced for the improving global growth outlook. It could help to reduce the risk of another disruptive taper tantrum event. It has been notable that the global economic data flow has continued to surprise to the upside as yields have lost upward momentum since the middle of last month.
“USD/JPY has been the most sensitive G10 currency pair to rising US yields. The loss of upward momentum for yields will make it harder for USD/JPY to sustain levels above 110.00 and could eventually trigger a deeper correction lower.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD fluctuates in daily range above 1.0600
EUR/USD struggles to gather directional momentum and continues to fluctuate above 1.0600 on Tuesday. The modest improvement seen in risk mood limits the US Dollar's gains as investors await Fed Chairman Jerome Powell's speech.
GBP/USD stabilizes near 1.2450 ahead of Powell speech
GBP/USD holds steady at around 1.2450 after recovering from the multi-month low it touched near 1.2400 in the European morning. The USD struggles to gather strength after disappointing housing data. Market focus shifts to Fed Chairman Powell's appearance.
Gold retreats to $2,370 as US yields push higher
Gold stages a correction on Tuesday and fluctuates in negative territory near $2,370 following Monday's upsurge. The benchmark 10-year US Treasury bond yield continues to push higher above 4.6% and makes it difficult for XAU/USD to gain traction.
XRP struggles below $0.50 resistance as SEC vs. Ripple lawsuit likely to enter final pretrial conference
XRP is struggling with resistance at $0.50 as Ripple and the US Securities and Exchange Commission (SEC) are gearing up for the final pretrial conference on Tuesday at a New York court.
US outperformance continues
The economic divergence between the US and the rest of the world has become increasingly pronounced. The latest US inflation prints highlight that underlying inflation pressures seemingly remain stickier than in most other parts of the world.