The dollar was under pressure against the yen on Monday after the U.S. bond yields posted declines, while the euro struggled in the wake of significant losses over the looming concerns about the upcoming French elections last week.
Concerns in the market came after a unified left-wing front had sent the centrist vote to shift toward Le Pen.
Ahead of the recent drop in European political risks, the greenback edged lower against the yen by dragging down Treasury yields to one-week lows of 2.4 percent.
The currency was slightly changed at 113.090 yen, which settled slightly away from 112.620, marking its lowest level since Feb. 9.
The dollar index against a basket of major peers stood at 100.930. Meanwhile, the index has gained 10 straight days earlier this month before losing momentum despite a better-than-expected U.S. data, which sent disappointments on dollar bulls.
"It is hard for dollar/yen to move higher when the 10-year Treasury yield, which initially rose to as high as 2.6 percent, is not stuck around 2.4 percent," analyst Koji Fukaya said.
Meanwhile, the Treasury 10-year yield gained over 2.6 percent in December to a two-year high when the markets wobbled as anticipation rises over Donald Trump’s plans on fiscal stimulus and reflationary policies once he won the presidential election.
"There is also the possibility of the next U.S. rate hike being pushed back to May instead of March. The Fed might not be inclined to hike rates, and thus induce a rise in yields, just on the Trump administration's deregulation moves and tax cuts," Fukaya said.
It seemed that Trump’s plans for improving fiscal stimulus have not materialized yet, which cancelled some of the recent dollar-supportive factors.
Three Rate Hikes for 2017
After Fed Chair Janet Yellen’s hawkish testimony, citing three rate hikes is likely in 2017 and waiting too long for a raise is “unwise”, the US Dollar exchange rates remained positive as it appears that a Yellen-induced rally in January has failed to hold their gains.
Despite a sharp rally in US inflation data in almost four years, the dollar still weakens. Analysts have said that the markets remained cautious after the US CPI for January stood at +0.6% versus a market consensus of +0.3%.
Subsequently, the US core CPI also held higher than the expected increase of +0.3%.
The chart below illustrates USD/JPY price movement in the wake of Fed Chair Janet Yellen’s testimony on interest rates.
Given a declining trend of the pair, there is still no confirmation if the price would continue to drop as support 1119.74 is not reached. Further, the pair traded in a light trading volume and the RSI settled at 46.8888.
As the illustrative chart above shows a bearish tone on the pair, market participants are recommended to still wait on the sidelines as there aren’t any supporting candle until the price tests its current support level.
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