Dollar Firms as Treasury Yields Climb; Yen Slips on Japan Quake, Stocks Edge Lower
The US dollar advanced across majors as Treasury yields ticked higher and traders priced a “hawkish cut” path for the Federal Reserve. A powerful quake off northern Japan pressured the yen, pushing USD/JPY through a key technical level, while Wall Street ended modestly lower amid rising rates and defensive positioning.
Greenback Bid on Rates; Fed “Hawkish Cut” Narrative Builds
- The dollar strengthened broadly as US yields rose across the curve despite a well-received 3-year note sale. The move echoed a market leaning toward a cautious easing cycle—rate cuts paired with resolute inflation guidance.
- USD performance snapshot versus majors: +0.37% vs JPY, +0.30% vs CHF and CAD, +0.23% vs AUD, +0.05% vs GBP, +0.03% vs EUR; little changed vs NZD.
- Curve levels into the close: 2-year 3.58% (+1.7 bps), 5-year 3.75% (+3.5 bps), 10-year 4.17% (+2.9 bps), 30-year 4.81% (+1.8 bps). The US Treasury sold $58 billion of 3-year notes at a 3.614% high yield.
Key Points
- US dollar rises as Treasury yields firm; positioning aligns with a potential Fed “hawkish cut.”
- USD/JPY breaks above its 200-hour moving average at 155.628 after Japan’s offshore quake stirs risk aversion.
- NY Fed survey: one-year inflation expectations steady at 3.2%; households turn more cautious on finances.
- Stocks slip: Dow -0.45%, S&P 500 -0.35%, Nasdaq -0.14% as yields and defensive rotation weigh.
- AUD/USD soft ahead of the RBA decision; ECB’s Schnabel comfortable with rate-hike pricing keeps euro little changed.
- US allows Nvidia’s H200 chip exports to China; oil settles at $58.88 amid subdued demand signals.
- BLS to skip October PPI; November report slated for Jan. 14, reshaping near-term inflation catalysts.
Yen Under Pressure as Quake Spurs De-Risking
A magnitude 7.6 earthquake off northern Japan initially triggered tsunami warnings before authorities downgraded them to advisories. The risk shock hit the yen, with USD/JPY jumping through the 200-hour moving average at 155.628, flipping short-term momentum in favor of the dollar. As long as spot holds above that level, the bias remains topside, with quake-related uncertainty encouraging JPY selling until conditions normalize.
Rates, Policy Signals and Macro Pulse
Comments from White House economic adviser Kevin Hassett leaned dovish on growth, emphasizing room to “get the rate down some” while monitoring data, and suggesting scope for lower 10-year yields if policy eases. Markets continue to price a careful Fed path: rate cuts without loosening the inflation stance too quickly.
The New York Fed’s November survey showed inflation expectations steady at 1-year (3.2%), 3-year (3.0%) and 5-year (3.0%). Home-price expectations were unchanged at 3%. Consumers grew more pessimistic about current and future finances, while medical-cost inflation expectations hit the highest since January 2014. Labor sentiment improved modestly.
Stocks, Commodities and Cross-Asset Flows
- US equities slipped as higher yields and sector rotation pushed investors defensively: Dow -0.45%, S&P 500 -0.35%, Nasdaq -0.14%.
- Oil settled at $58.88, underscoring a cautious demand backdrop that could help temper headline inflation if sustained.
- Nvidia received approval to export its H200 chips to China, a marginal easing in US tech export frictions that may bolster semiconductor sentiment even as rates dominate broader risk appetite.
Europe, Asia and FX Crosscurrents
- Major European indices closed mixed, while euro rates held firm after ECB’s Schnabel indicated comfort with rate-hike bets. The euro was little changed versus the dollar.
- AUD/USD corrected lower into the RBA decision as carry and yield differentials favored the USD; liquidity likely thins ahead of the announcement.
- Policy watch: The US Treasury Secretary Bessent said work on a trade deal with India continues. In agriculture, former President Trump flagged potential severe tariffs on fertilizer imports from Canada and floated $12 billion in aid to US farmers—headlines that could sway agri-commodity pricing and input costs.
- Geopolitics: Ukraine’s President Zelenskyy called talks in London productive, but market impact was limited.
Data and Event Calendar Adjustments
- The Bureau of Labor Statistics will not publish the October PPI; the next release (for November) is scheduled for January 14, removing a near-term inflation catalyst from the calendar.
What to Watch Next
- RBA policy decision and guidance on inflation and growth.
- US CPI/PCE timing and implications given the PPI gap; any updated guidance from Fed officials.
- Further aftershocks and infrastructure assessments in Japan that could influence JPY and Nikkei flows.
- US Treasury auctions and issuance dynamics for signals on term premium and dollar support.
FAQ
Why did the US dollar strengthen today?
US Treasury yields rose across the curve, reinforcing the attractiveness of USD assets. Markets are also leaning toward a “hawkish cut” path from the Fed—potential rate reductions accompanied by firm inflation guidance—which tends to support the dollar.
What’s behind the move in USD/JPY?
A strong quake off northern Japan triggered initial risk aversion, pressuring the yen. Technically, USD/JPY broke above its 200-hour moving average at 155.628, turning near-term momentum bullish while uncertainty lingers.
How did the US rates market trade?
Yields were higher: 2-year 3.58% (+1.7 bps), 5-year 3.75% (+3.5 bps), 10-year 4.17% (+2.9 bps), 30-year 4.81% (+1.8 bps). A $58B 3-year auction cleared at 3.614%, showing solid demand even as yields rose.
What does the NY Fed consumer survey imply for the Fed?
Inflation expectations were steady at 1-, 3- and 5-year horizons, but households turned more cautious on finances and saw healthcare costs rising. The mixed tone lets the Fed stay data-dependent without rushing to ease aggressively.
Why is AUD under pressure?
AUD/USD dipped ahead of the RBA as traders trimmed risk and respected yield differentials that currently favor the USD. Liquidity typically thins into an RBA decision, amplifying moves.
What’s the significance of the BLS skipping October PPI?
With October PPI absent and the November report due January 14, markets lose a near-term inflation cross-check, placing more weight on CPI, PCE, and wage data to shape Fed expectations.
How do chip export headlines affect markets?
US approval for Nvidia’s H200 exports to China eases a pinch point in the tech supply chain, supportive for semis. However, broader equity direction remains tied to rate dynamics and growth data.
This article was produced by BPayNews for informational purposes and market context.
