First, let’s look at the euro and yen (inverted).
Clearly, these currencies are under pressure from US interest rate policy, which is also reflected in bond yields. Quite why France’s 10-year OAT only yields 3.1% when France is in political turmoil and heading for a 7% budget deficit illustrates how far it is from reality. And as for Japan, with the 10-year JGB yielding only 1.09%, it’s hardly surprising that the yen is plunging.
Both these currencies and their debt markets are getting a nasty wake-up call, not just from the US Fed, but also global bond markets. The yield on the leading supposedly risk-free 10-year US Treasury Note is rising as I have recently forecast:
