Asian Currencies

Tuesday morning on the currency market began in relative calm. The U.S. dollar index and dollar futures stabilized during Asian trading, offering a long-awaited pause after several days of relentless selling in the bond market that had dragged virtually every other asset down with it. Investors, exhausted by surging yields and constant repricing of interest-rate expectations, stepped back to reassess the situation and consider what might come next.

Two factors helped trigger this temporary relief.

The first was a technical correction in the Treasury market. Yields on 10-year U.S. government bonds fell by half a percentage point from levels that had hovered near yearly highs just a day earlier. Thirty-year yields dropped by two-tenths of a percentage point after coming within arm’s reach of their highest levels in nineteen years. Nineteen years ago is so far back that many traders sitting at their terminals today were still in school — or had not even considered a career in finance.

The second factor was oil. The bond selloff eased alongside declining energy prices. The reason for that decline has a name: Donald Trump. The American president stated that he had postponed a planned military operation against Iran and that negotiations were progressing successfully. Markets, which had spent recent weeks bracing for the possibility of another Middle East war, interpreted the statement as a cautiously optimistic signal. Oil moved lower, and bonds calmed down with it.

Still, this calm remains highly conditional. Oil prices continue to hold onto much of their recent gains, and the inflationary consequences of the Iranian conflict have not disappeared. Markets remain tense — just slightly less tense today than yesterday.

The most intriguing story of Tuesday revolves around the Japanese yen. The dollar-yen pair rose by one-tenth of...