Dollar remains steady while yen declines as JGB auction offers reassurance

Market Update: Dollar Strengthens Amid Bond Auction

SINGAPORE – On Tuesday, the U.S. dollar remained steady as a successful Japanese government bond auction helped calm investors following a recent global bond selloff.

The dollar gained 0.1% against the yen, reaching 155.72 yen, after the auction for 10-year Japanese government bonds showed particularly strong demand, the highest since September. This led to a rally in long-term securities, especially after yields initially hit a record high.

“The auction results seem to have given the market some sense of security,” noted Shoki Omori, chief desk strategist at Mizuho Securities in Tokyo.

This comes in the wake of a turbulent Monday, where stocks, bonds, cryptocurrencies, and the dollar all dropped after Bank of Japan Governor Kazuo Ueda indicated that he might weigh raising interest rates in the upcoming policy meeting. Notably, Japan’s two-year bond yield also crossed the 1% mark for the first time since 2008, which sent shockwaves through global bond markets.

Current swap pricing reflects around a 70% probability that the Bank of Japan will increase interest rates by 25 basis points in its next meeting this month.

Further complicating matters, disappointing U.S. manufacturing activity data has added pressure on the Federal Reserve to consider interest rate cuts in its meeting later this month.

“The strengthening of prior tentative expectations for a December 10 Fed rate cut and a December 19 BoJ rate hike should lend credence to the Japanese government’s efforts to stabilize the yen,” analysts at DBS mentioned in a report.

Concerns About Demand

Meanwhile, the U.S. dollar index, which tracks the dollar against a basket of major currencies, showed some fluctuation after reaching a low during Monday’s trading. It was recorded at 99.441, slightly up after breaking a seven-day losing streak.

Data released on Monday revealed that U.S. manufacturing contracted for the ninth consecutive month in November, with the Institute for Supply Management’s manufacturing PMI dipping to 48.2 from 48.7 the month before.

Indicators related to new orders and employment also worsened, while input prices increased due to ongoing tariff impacts.

“This clearly indicates that economic demand is cooling,” commented Brian Martin, head of G3 economics at ANZ in London.

He expressed his belief that the Fed should reduce rates, not just in December but again next year, and he anticipates another 50 basis point cut by 2026.

According to CME Group’s FedWatch tool, there’s now an 88% implied probability of a 25 basis point rate cut at the Fed’s next meeting, compared to a 63% chance a month prior.

The yield on the U.S. 10-year Treasury note saw a decline of 0.8 basis points to 4.0865% as buyers returned following Monday’s market selloff.

In Asia, the euro remained stable at $1.1610. Discussions aimed at resolving the war in Ukraine are ongoing, with European leaders showing support for Ukrainian President Volodymyr Zelenskiy in light of a U.S.-backed peace proposal perceived as favorable to Russia, while a U.S. envoy is set to meet with Kremlin representatives.

The pound also rose slightly by 0.1% to $1.3217, nearing a one-month high. This came after the resignation of the head of Britain’s fiscal watchdog following a blunder by Chancellor of the Exchequer Rachel Reeves who prematurely published critical details of the government’s annual budget.