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Before US consumer-centric data, USD/JPY declines from a 23-year high as yields go lower

Alina Haynes

Jul 15, 2022 11:36

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In addition to continuing Thursday's decline from a multi-year high into Friday's opening Asian session, USD/JPY takes offers to renew intraday bottom at 138.80. The current decrease in the yen pair may be attributed to market inertia, yield reductions, and a cautious outlook before the publication of significant US data.

 

While 2-year bond coupons decreased by 0.75 percent to 3.12 percent, 10-year US Treasury rates finished Thursday at 2.95 percent, up 0.95 percent from the previous day. As a result, the difference between the coupons of short-term and long-term bonds shrank from 23 basis points (bps) on Tuesday to 17 bps. The market's fears of a recession appear to have lately subsided due to the shrinking disparity between the 2-year and 10-year US Treasury rates, allowing the US dollar bulls to recover their breath. It's noteworthy that as of press time, the 10-year Treasury rate flashes 2.945 percent and the 2-year bond coupon fluctuates at 3.12 percent.

 

Additionally, the Fed's policymakers' efforts to stop discussions of a 100 basis point rate increase and confusing US data supported USD/JPY selling.

 

Among the prominent Fed speakers who made an effort to downplay the probability of higher interest rates were Christopher Waller, governor of the Federal Reserve, and James Bullard, president of the Federal Reserve Bank of St. Louis. Bullard of the Fed, however, noted that "up to this point, we've framed this conversation exclusively in terms of 50 vs 75." Reuters quotes Fed's Waller as saying that markets may have anticipated a 100 basis point rate increase in July too soon. It should be noted that the Federal Reserve will observe a blackout period before the July 28 Federal Open Market Committee meeting starting this weekend (FOMC).

 

The Producer Price Index (PPI) for final demand in the US climbed by 11.3 percent yearly in June, up from 10.9 percent in May, according to the US Bureau of Labor Statistics. This outcome was higher than the 10.7% market expectation. In addition, compared to the previous week's total of 235,000 and the market's projection of 235,000, there were 244,000 first claims for unemployment benefits for the week ending July 9. The number of weekly claims for unemployment rose to its highest level in five months.

 

The market's cautious optimism is reflected in the intraday S&P 500 Futures' 0.13 percent advance to 3,800 in reaction to these wagers.

 

Notably, US Treasury Secretary Janet Yellen chastises Russia for its invasion of Ukraine at the opening of the G20 summit in Indonesia. The readiness of China to ease tensions with Australia seems to lift spirits.

 

Given this, USD/JPY traders should pay close attention to the risk catalysts for immediate direction ahead of US Retail Sales, which are anticipated to increase 0.8 percent MoM in June from -0.3 percent in May. These readings will be followed by the preliminary readings of the Michigan Consumer Sentiment Index (CSI) for July, which are anticipated to decrease to 49.9 from 50.0 previously, as well as Fedspeak.


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