MUFG’s Michael Wan notes that US longer-end yields have returned close to pre-buyback levels, with the 10-year at 4.7% and 30-year at 5.24%, weighing on risk assets. From an FX angle, the Dollar Index’s (DXY) recovery is seen as largely driven by Japanese Yen (JPY) underperformance, with USD/JPY nearing 159 and EUR/JPY rising toward 185.71, despite recent joint FX intervention.

Underperformance drives Dollar strength

“From an FX perspective, the Dollar Index initially sold off but subsequently rose through the trading session, but we note that this seems to reflect factors specific to Japanese Yen underperformance, with USD/JPY rising closer to the 159 levels, and EUR/JPY in particular rising to 185.71 levels.”

“Overall, there is no irony lost that in both cases of key market intervention over the past month that levels are now closer to that seen before the action – first in the joint FX-intervention in the Japanese Yen between the US and Japan on 30 July, and second through the buyback announcement in the US Treasury market on 19 August.”

“The big picture as the global team and ourselves have been saying is that fundamentals matter, and for intervention to truly work in changing market trends be it as it may in FX or rates some underlying macro has to shift.”