- USD / JPY has fallen back below the 108.50 mark after the US CPI soft report and US yield fell.
- Headlines regarding the next U.S. FX markets stimulus bill did not move on Wednesday but are a topic to watch.
USD / JPY has continued its negative trading trend into second day and after spending most of the session above the 108.50 mark, it is likely to close trading on Wednesday. FX is around the 108.40 mark, just above this week’s low levels at near 108.30. That translates to a very slight decline on the day below 0.1% or around 10 pips.
Driving the day
U.S. bond yields have seen a good fall on Wednesday, with the 10-year yield down around 2.5bps at the time of writing. Given that higher yields have been one of the main drivers of the recent USD / JPY rally, it is perhaps surprising that USD / JPY fell slightly more on Wednesday. Even more astonishing is the fact that the U.S. Consumer Price Inflation report did not deal a bigger blow to the buck – some analysts may argue that this is because the majority of commons. Market participants still expect a sharp rise in inflation in the coming months, so a small loss in February is very important.
On the other hand, the moderately strong market sentiment may have put pressure on demand for the safe yen. In fact, U.S. stocks (mostly) are doing well, with the S&P 500 up about 0.7% and other risk funds such as crude oil, AUD and NZD all pushing higher. Risk appetite was boosted by a soft report by the US CPI, which helped reduce U.S. bond yields as it pushed back against fears that the U.S. economy is going to “warm up”. At the same time, it looks like the U.S. House has enough votes to introduce US President Joe Biden’s $ 1.9T incentive package into law in time for the termination of unemployment benefits employment improved on 14 March.
There have been a handful of headlines over the next U.S. fiscal stimulus bill. According to the Washington Post, Biden’s next bill (the “recovery package”) may be a package of measures related to “China” (ie to address competition with China) and may be including action on semiconductors, supply chains, U.S. manufacturing and 5G. According to the report, the timing of that bill is unclear. Separately, Fox Business News reporter Charlie Gasparino claimed that Biden’s “recovery package” could be as much as $ 2.5T over the next 4 years and could lead to a included some public-private partnerships aimed at reducing government spending. Gasparino suggested that more details could start to leak in the coming days.
These headlines don’t seem to have had much of an impact on risk appetite, but if this second Biden stimulus package starts to pick up some momentum in the coming weeks / months, this could be a another reason for risk funds to accumulate, or panic about overheating, depends on market sentiment and Fed messages. In either case, this is unlikely to go well for JPY.