USD/JPY benefits from surging US bond yields

USD/JPY took advantage of the positive correlation with US Treasury yields hitting a new high after yields on benchmark bonds showed a significant amount of consolidation throughout the trading day, on Thursday.

US Treasury bond yields were able to consolidate in an upward trend on Thursday with the emergence of several positive US data that favoured the scenario of delaying the rate cut to a large extent.

Ten-year US Treasury bond yields reached 4.274%, which indicates that they did not change at all compared to the last daily close as a result of the emergence of different batches of economic data.

There is a positive relationship between the pair and yields on US sovereign bonds, which led to both rising at the same time after benefiting from the positive data batches that appeared throughout the trading day on Thursday.

Positive data

The Manufacturing Purchasing Managers’ Index (PMI) issued by Markit Market Research rose to 52.5 points in March, compared to the previous reading of 52.2 points, which exceeded market expectations of 51.7 points.

Weekly unemployment claims in the United States decreased, contrary to expectations, by 2,000 claims to 210,000 claims, which indicates the continued improvement in the American labour market, which is in favor of expectations of a delay in the interest rate cut.

Home sales in the United States also rose in February to the highest level in a full year after recording an increase of 4.38 million units last February, compared to the previous reading of 4.00 million units, which exceeded market expectations that indicated 3.94 million units.

The improvement in the US labour market conditions and the improvement in the economic conditions in the United States in general are considered among the developments that would prompt the Fed to slow down in reducing interest rates, despite the progress it has made recently in terms of reducing inflation.

The data issued coinciding with the opening of daily trading on Wall Street on Thursday was one of the factors that supported the scenario of delaying the rate cut, given that it reflected the continued improvement of labour market conditions in the United States, as the Federal Reserve needs to see job growth and wage growth decline in order for it to declare assured victory over inflation in the battle that began in March 2022.

As a result, investors in the markets began to lean into speculation that the Fed may have some time to start seriously considering a rate cut.