Financial markets appear to be shrugging off inflation concerns and investors have conjured up reasons to incite a rally in US equities on today, and before the release of quarterly earnings reports, which start this week.
Basic Materials & the Energy sectors are leading the rally higher on the back of increasing commodity gains, with oil prices surging higher, which is primarily responsible for the energy crisis across Europe & Asia.
Despite the fact that disruptions in the global supply chain have stoked fears of slowing global growth, stock markets are choosing to price in decent earnings data coming from Big Tech/Growth related stocks, which is causing financial assets to remain buoyant for the first half of the US Trading Session.
Yen crosses are rallying across the board on the back of interest rate differentials between the Japanese Yen and most G-10 currencies. Global bond yields are surging to the upside on inflation fears, and whenever rate projections move higher, investors will search for “carry” by selling the Japanese Yen and buying the Base Currency. Also, it’s important to keep in mind that the Yen usually weakens when yields rise due to inflationary pressures. So, this could be the primary reason for the broad-based selling in JPY.
Since Global Bond Rates are moving higher across G-10 markets, most investors will be looking for opportunities to sell the low-yielding currency (JPY) and buy currencies with a higher rate projection in hopes to profit from “carry”. This is a long term view since most central banks haven’t hiked their rates yet and although some banks are on the normalization path, cash rates are still fairly low. So, most of the rally in yen pairs is mostly attributed to the spike in bond yields, rather than any extra profits earned through the carry trade.
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Marvin Perry has been an active trader within the Forex market since 2010. He attended the University of Illinois in Urbana/Champaign, and graduated in 2002 with a double major in Cell and Structural Biology and Chemistry. He currently serves as an FX instructor & Quantitative Analyst for the Forex Anatomy Private Trading Community called "The Lab", where he conducts live weekly trading webinars & instruction on Fundamental Analysis & Inter-Market Interpretations of dynamic asset classes and their influence on currencies.