USD/JPY vs. 10-Year Treasury Yield (%) Daily Chart
US 10-year Treasury yields are currently down 5.5 basis points to 3.625%, further weighing on USD/JPY today. The pair is currently down 1% to a new low of 140.43, approaching the December 2023 lows of 140.24 and 140.00 levels. Yesterday's early morning bounce was admittedly short-lived, especially as traders are strongly pricing in the possibility of a 50 basis point rate cut by the Fed next week.
As it stands, Fed Funds futures are pointing to about a 116 basis point cut by the end of the year. Personally, I think that's still overdone, but traders have remained confident this week. The odds of a 50 basis point cut next week are currently at about 41%.
Either way, the key chart to watch for the Dollar and USD/JPY as we close out the week will be the 2-year Treasury yield.
US Treasury 2-year Yield (%) Monthly Chart
It is currently hovering around the 3.55% low for 2023. A drop that far might be an overshoot for the Fed in pricing, but it cannot be completely ruled out at this point.
This market has a tendency to overreact when it threatens the Fed and doesn't get its way before pricing it back down, as was the case late last year when six rate cuts in 2024 were priced in.
