Currency trading is panicking in the aftermath of the CPI report. The euro rose to 1.0832 but has dropped most of its value to 1.0780.
Because markets largely discounted a possible 50 basis point increase in February, the initial decline in the dollar occurred. Morgan Stanley, which issued a note saying that the Fed would hike 25 bps more in February, is also out. Bond prices have struggled to move higher.
Yields rebounded from their initial decline to 3.53 percent but downball have gained now. I think YCC and QE from the BOJ are sending misleading signals in the market. USD/JPY fell 212 pips after a report said that the BOJ was concerned about the consequences of QE and YCC.
As a result, JGB sales and Treasury purchases were likely, but the broader market read the decline in US yields as a hawkish signal. The dollar has rebounded now, as those flows have been taken care of.
