The dollar / yen edged higher on Tuesday, supported by yesterday’s end-of-session upside reversal by US Treasury yields.
On Monday, the dollar fell slightly as traders lowered US Treasury yields over the medium term following a blow to prospects for approving Democratic climate and spending legislation in Washington and concerns about the continued spread of the Omicron coronavirus.
At 03:00 GMT, USD / JPY is trading at 113.654, up 0.027 or + 0.02%. The Invesco CurrencyShares Japanese Yen Trust (FXY) ETF came in at $ 82.57, up $ 0.03 or + 0.04%.
U.S. Treasury Yields Rise Slight As Investors Assess Omicron Risk
U.S. Treasury yields edged up on Monday, as investors feared the omicron COVID variant could derail the recovery.
The benchmark 10-year Treasury bill yield increased 2.6 basis points to 1.428% at close. The yield on 30-year Treasury bonds rose 3.7 basis points to 1.854%.
Steeper Yield Curve as Spending Talks Collapse
Dollar / yen traders since the Federal Reserve’s monetary policy decisions last Wednesday have been ravaged by the volatile movement of the US Treasury yield curve.
The yield curve steepened on Monday after President Biden’s spending plans in Washington were hit. The three-year Treasury bill yield fell 1.9 basis points to 0.9069% in afternoon trading, while longer-term government debt yields rose throughout. of the day. The 30-year bond rose 3.5 basis points to 1.854%.
Analysts said investors were reacting in part to Washington’s fall and were trying to predict its impact on US Federal Reserve thinking.
Hope for Biden’s domestic investment bill collapses
U.S. Senator Joe Manchin, a moderate Democrat who is key to President Joe Biden’s hopes of passing a $ 1.75 trillion domestic investment bill, said on Sunday he would not support the package, attracting strong reprimands from the White House.
Manchin appeared to deal a fatal blow to Biden’s domestic policy bill, known as Build Back Better, which aims to extend the social safety net and tackle climate change.
“I cannot vote to continue with this bill,” Manchin said in an interview with the “Fox News Sunday” program, citing concerns about inflation. ” I can not. I tried everything humanly possible.
He then issued a statement accusing his party of pushing for increased debt that would “significantly hamper” the country’s ability to respond to the coronavirus pandemic and geopolitical threats.
The dollar / yen noticed when Goldman Sachs lowered its quarterly GDP forecast for 2022 in reaction to the Manchin news. This is very important because if the economic growth of the United States is to be slower, the Federal Reserve may not have to raise interest rates as quickly in 2022. This will affect Treasuries, the yield curve. rate and will likely cap the USD / JPY.