USD/JPY 10 minutes
The US dollar fell on weak ISM manufacturing, but it bounced back strongly.
Fuel is coming from the bond market, where 10-year Treasury yields are now up 12 basis points on the day and more than 20 basis points since their lows after Friday’s personal consumer spending data.
The USD/JPY pair reached a 34-year high, rising about 64 pips to 161.46, and previous gains in commodity currencies also bottomed out, with some help from the stock market, which did not open as strongly as expected.
So what is the reason behind the sharp decline in bonds despite falling inflation rates and weak growth data?
“The sell-off remains a result of the economic fallout from a likely Trump win in November, and there is nothing on the immediate horizon that would suggest a need to shake off the downside,” Bank of Montreal wrote today.
The market is likely pricing in a Republican sweep rather than some sort of split in Congress. I don’t think the market has any illusions about fiscal discipline, and that will be put aside by a broad campaign that will pave the way for extending tax cuts and keeping spending high. Some may argue that, but yields have certainly risen since Biden’s weak debate.