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The U.S. dollar surged Tuesday, buoyed by investor optimism over improving domestic data and sharply lower Japanese bond yields that weakened the yen. The greenback also gained against the euro, which was dragged down by weaker-than-expected inflation data out of France.
The dollar rose 1% to ¥144.28, marking one of its most significant single-day gains against the yen this quarter. The move followed a drop in yields on Japan’s super-long government bonds, triggering a selloff in the yen as expectations of tighter monetary policy receded.
“Global bond markets are driving FX sentiment,” said Eric Theoret, a foreign exchange strategist at Scotiabank in Toronto. “In Japan, the Ministry of Finance’s latest communication with primary dealers hints at possible issuance changes, shaking confidence in long-term yield stability.”
Japan’s Ministry of Finance sent out a questionnaire to bond dealers, raising speculation that issuance of super-long bonds may be reduced. The yield retreat comes amid shrinking demand from domestic life insurers and growing debt concerns.
Across the Atlantic, the euro slipped 0.46% to $1.1335 as French consumer inflation for May fell to its lowest since late 2020. Analysts say the data reinforces expectations of more dovish action from the European Central Bank.
U.S. economic momentum added to the dollar’s strength. The Conference Board reported that May consumer confidence beat expectations, lifting sentiment around U.S. consumption and reducing near-term recession concerns. The greenback also gained 0.77% against the Swiss franc to 0.827.
Adding to the risk-on sentiment, U.S. President Donald Trump on Sunday walked back his threat to impose 50% tariffs on EU imports. The move was well-received by global markets, as tariff relief helped reduce fears of rekindling inflation and slowing trade.
Still, longer-term concerns persist. Analysts remain cautious about the sustainability of dollar strength amid Washington’s rising protectionist tilt and an expected increase in government debt from a pending tax-and-spending bill moving through Congress.
“There’s no doubt that the short-term data is supporting the dollar, but structurally, the fundamentals are deteriorating,” said Theoret.
Market participants are now focused on the Federal Reserve’s preferred inflation gauge, the April PCE data due Friday, and Congressional negotiations over a spending bill that could reshape the U.S. fiscal outlook.
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