**US Dollar Tumbles as Treasury Yields Drop Post Fed; Yen Spikes on Intervention Doubts**
*Original Author: Andriy Miraru, Mitrade News*
The US dollar experienced significant volatility on Tuesday as a dramatic decline in US Treasury yields followed the Federal Reserve’s latest monetary policy announcement. Meanwhile, the Japanese yen surged in late trading amid speculation the Bank of Japan (BoJ) might be intervening in currency markets, underscoring ongoing global concerns about volatility and central bank actions.
## Key Developments Impacting the Forex Market
### 1. The Fed Holds, But Signals a Pause
The Federal Reserve decided to keep the benchmark federal funds rate steady at a range of 5.25 to 5.50 percent. This much-anticipated move was in line with market expectations and comes after the fastest pace of rate hikes in four decades. The central bank’s official statement noted modest economic expansion and tepid jobs growth, and importantly, highlighted softened language describing household spending.
– **Fed Rate Decision**: Unchanged at 5.25 to 5.50 percent.
– **Economic Assessment**: Growth has ‘slowed from its strong pace’ in Q3.
– **Labor Market**: Noted ‘modest’ gains, signaling possible slack.
– **Inflation**: Acknowledged ‘elevated’ inflationary pressures but refrained from more hawkish tones.
Fed Chair Jerome Powell, during his press conference, emphasized that officials were not actively considering further tightening at this point. The markets interpreted this as a dovish signal, sparking a reversal in the rallying greenback and triggering a sharp drop in Treasury yields.
### 2. US Treasury Yields Plunge
The bond market’s reaction to the Fed’s statement was swift and decisive. Yields on the US 10-year Treasury note, which had reached multi-year highs above 5 percent in October, fell below 4.75 percent. This slide marks a stark break from the previous trend, where expectations of future hikes kept yields and the dollar buoyant.
– **10-Year Yield**: Dropped over 20 basis points to trade below 4.75 percent.
– **2-Year Yield**: Also fell sharply, reflecting shifting expectations.
– **Yield Curve Implications**: The flight to bonds flags reduced expectations for further Fed tightening and signals possible risk aversion in equities.
For currency traders, Treasury yields are a key anchor driving the dollar’s performance. Lower yields diminish the greenback’s interest-rate premium over other major currencies. The Fed’s latest stance, and the subsequent yield drop, triggered a selloff in USD against most G10 peers.
### 3. Dollar Index Reverses Course
The US Dollar Index (DXY), which tracks the buck against a basket of six major currencies, tumbled from six-week highs above 107.00 to near 106.30 within hours. Earlier in the week, strong US GDP and inflation prints had renewed bets on further tightening, but the Fed’s reluctance to hint at more hikes saw those expectations rapidly vanish.
– **DXY High**: Briefly breached 107.10 on Monday.
– **Post-Fed Low**: Slid to 106.27 as risk appetite recovered.
– **Biggest losers**: EUR/USD and GBP/USD swiftly recouped losses, rising above 1.0600 and 1.2200 respectively.
### 4. Japanese Yen Surges on Suspected Intervention
Late Asian trading delivered one of the session’s biggest surprises: a sudden, sharp rally in the Japanese yen. USD/JPY crashed from nearly 151.70 to below 150.00 in minutes, fueling speculation that Japan’s finance ministry had once again intervened verbally or directly to support the currency.
– **BoJ Meeting Recap**: Earlier this week, the Bank of Japan left its yield curve control (YCC) parameters largely unchanged
Read more on GBP/USD trading.