The Japanese yen saw its value decrease compared to the U.S. dollar as U.S. yields rose, prompting investors to engage in carry trades amid calm markets. The dollar strengthened to levels that had previously led to potential interventions by Tokyo in the past, albeit at a slower pace this time around. Asian currencies like the yen and Chinese yuan faced pressure as U.S. easing expectations adjusted, and bond auctions caused yields to rise.
While U.S. consumer price inflation data initially weakened the dollar, U.S. Treasury yields rebounded, reaching their highest point in nearly a month at 4.57%. Concerns arose over the demand for U.S. government debt following a lackluster auction of two-year and five-year notes. The Chinese yuan's weakness had ripple effects on other currencies, impacting movements in G10 currencies like the Australian dollar, despite positive Australian inflation data.
The yen remained under pressure due to carry trades, with investors capitalizing on low volatility to seek higher yields. This strategy led to notable movements like EUR/JPY breaking the 170-level for the first time and GBP/JPY reaching levels not seen since 2008. The euro showed weakness against both the dollar and pound following German regional inflation data, although it was still set to record a monthly gain, marking its first rise of the year.