US Dollar, Japanese Yen Stage a Comeback as Risk Sentiment Take a Turn for the Worse

The US dollar and Japanese yen both staged notable rallies on Wednesday amidst a broad shift in sentiment, which weighed on FX carry trades and US equities, with the DJIA ending the day down 66 points and the S&P 500 losing 13 points. Looking to the news of the day, Federal Reserve Chairman Ben Bernanke testified in front of the House Budget Committee and spoke about economic developments, the economic outlook, financial market conditions, fiscal policy, and Federal Reserve transparency. Bernanke’s comments ultimately weren’t very market-moving and failed to provide a boost to investor sentiment. The same goes for ISM non-manufacturing, which rose to 44.0 in May from 43.7, with a breakdown showing that business activity, new orders, and employment all continue to slow, though the latter has started to fall at a slower pace than in previous months. This move in the employment component suggests that Friday’s non-farm payrolls report will likely show that job losses remain high, but that the pace of declines are starting to slow.

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