- The nerves of COVID-19 benefited the JPY – safe haven and led to some selling around the USD / JPY.
- Falling US bond yields undercut the dollar and also contributed to the intraday selling bias.
- The decline remains muffled as the focus remains on this week’s FOMC policy meeting.
The pair USD/JPY it maintained its offered tone during the early days of the European session, although it has managed to trim some of the intraday losses and was last seen trading in the 110.30-25 region.
The pair witnessed some selling on the first day of a new trading week and slashed a significant chunk of Friday’s gains to highs of more than a week. Investors now seemed concerned that the spread of the highly contagious Delta variant of the coronavirus could derail the global economic recovery. This, in turn, affected global risk sentiment, which benefited the Japanese yen as a safe haven and put pressure on the USD / JPY pair.
Bearish traders followed signs of a sharp intraday decline in US Treasury yields, triggered by the global flight to safety. In fact, the benchmark 10-year US government bond yield reversed last week’s positive move to 1.30%. This was seen as a key factor that kept the USD bulls on the defensive and further contributed to the intraday USD / JPY slide from levels just above 110.50.
That said, a positive rally in equity markets and US bond yields acted as a headwind for traditional safe-haven assets and helped cap deeper losses for the USD / JPY pair. Investors also seemed reluctant to place aggressive bets amid the absence of relevant US economic releases to move the market. This warrants some caution before positioning for any further drop ahead of this week’s key risk event: the FOMC meeting that begins Tuesday.