US treasury yield spike pressurizing the USD focus.

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Latest market moves:
Some modest moves in the market since yesterday. The chief thing to note is that the US dollar has held lower, with EURUSD holding the 1.1300 reversal so far and the Dollar Index holding below the psychologically important 100.00 level.

JPY strength continues with a bit more pepper late in the late Asian session today. This would mark the fourth consecutive session of USDJPY drops. There was a brief squeeze overnight in JPY crosses that was prompted by Japan’s trade negotiator Kato confirming that currency levels should be determined by the market (this was aired by a Japanese newspaper already yesterday) and that FX was not discussed with US Treasury Secretary Scott Bessent in ongoing negotiations. But this quickly faded.

Again to belabor the point: remarkable to see the tectonic shift in the intermarket regime here as USDJPY continues its fall even as US 30-year yields threaten 17-year highs above 5.00% after yesterday’s weak 20-year auction unsettled the US treasury market. The theme remains one of the unsustainability of the US fiscal trajectory, which will require some form of treasury- and/or Fed intervention to at least cap US yields if not crush them back lower eventually. When a yield rise like yesterday’s sees risk off at the same time, the signal is particularly intense.

Chart: USDNOK
USDNOK is an interesting pair to pull out of the mix on a theme that has developed in recent weeks on the implications of the Trump administration’s attempt to reset global imbalances ing trade. By definition, any reduction in US trade deficits also means that the US would see a reduction of capital inflows into US capital markets (bonds, stocks, everything). If global capital flows go into reverse, those countries with the largest NIIP (Net International Investment Position) surpluses would see the largest reversal or bottling up of capital flows, leading to FX strength, while the largest NIIP deficit country is far and away the US. Japan and Switzerland are traditionally the larges NIIP surplus countries, but there are others, including the Norwegian krone, which unlike CHF and JPY sits at rather cheap levels. Much of this is because so much of Norway’s surpluses from its oil and gas profits are recycled into foreign capital markets, but one can’t help but wonder if this recent NOK surge is in part driven by this NIIP overlay, and if so, there is plenty of fuel left in the tank.