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The yen has weakened beyond 155 per dollar for the first time since July, increasing the likelihood of Japanese intervention in the currency market to curb its decline. This drop follows a 0.4% slide to 155.15, exacerbated by rising Treasury yields, with the two-year yield hitting its highest level since July.
Investors are reassessing their enthusiasm for 'Trump Trades' as doubts emerge regarding the feasibility of Donald Trump's ambitious tariff proposals. The dollar has reversed much of its post-election gains, while Treasury yields have stabilized. Meanwhile, Chinese stocks and the yuan have recovered from earlier losses linked to tariff concerns.
The dollar weakened as recent US presidential election polls revealed no clear leader between Kamala Harris and Donald Trump. In early trading, the greenback fell against several currencies, including the yen, pound, euro, and Australian dollar, following a prior strengthening linked to rising Treasury yields. Asian stocks are expected to open with little movement.
The risk of election-related violence poses a significant threat to the US dollar's dominance, which has long relied on the nation's institutional integrity. This stability has kept US borrowing costs low and maintained geopolitical power by excluding rivals from the global financial system. Key officials emphasize that the dollar's strength is rooted in the rule of law and robust institutions.
As America approaches its presidential and congressional elections, market participants are keenly analyzing potential outcomes and their implications for trade, defense, tax, and regulation. The focus is particularly on the Treasury market, a critical component of global finance, and the potential reactions from bond vigilantes.
CDS prices on US debt have risen, reflecting growing concerns about default risk amid a potential second term for Donald Trump. The 5-year credit default swap spreads widened from 35 bps to 46 bps as the 10-year yield increased from 3.6% to nearly 4.3%, indicating market vigilance regarding fiscal stimulus and inflation targets. Despite some ongoing measures from the Biden administration, the economic landscape suggests caution in stimulating the economy further due to deficit implications.
IG
Treasury yields are experiencing a significant increase, raising concerns about their potential trajectory. Analysts are closely monitoring the situation to predict how high these yields may rise in the near future. The implications of this trend could impact various sectors of the economy.
Markets remained subdued as Wall Street awaited corporate earnings, with the US dollar reaching a near two-month high amid inflationary expectations and rising Treasury yields. The AUD/SGD is testing support at the lower wedge trendline around 0.8750, while the EUR/USD is approaching upward trendline support at 1.076, with potential for a bounce if it holds.
IG
The Inflation Reduction Act of 2022 enables the development and sale of clean energy tax credits, with recent guidance from Treasury and the IRS focusing on electric vehicle charging stations and sustainable aviation fuel credits. The electric vehicle charging credit offers a 6% discount, potentially increasing to 30%, for stations in eligible low-income or rural areas, capped at $100,000 for businesses. Meanwhile, producers of renewable fuels express concerns over delayed rules for the clean fuel production credit, which is hindering investment in ethanol and other renewable fuels due to uncertainty in credit valuation based on greenhouse gas emissions standards.
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