Sudden USDJPY Spike Sends Yields, Stocks To Session Highs

Shortly before 1pm ET, a sharp spike in the USDJPY on high volume, which has since moved the USDJPY up by over 50 pips on short notice...

... and sent TSY yields well above the key 2.30% quadruple (or maybe quintuple bottom) support level...

... as well as pushing stocks ro session highs. The jerk higher in the USDJPY also slammed gold to overnight session lows.

It was not clear what was the catalyst for the sharp move, however shortly before the move Bill Dudley spoke, discussing the future of the Fed's balance sheet:

  • FED'S DUDLEY: RATES WILL BE PRIMARY POLICY TOOL, NOT 'GRADUAL' BALANCE SHEET REDUCTION
  • FED'S DUDLEY: PORTFOLIO RUN OFF WILL NOT BE 'ACTIVE' TOOL OF MONETARY POLICY
  • FED'S DUDLEY: ONE REASON TO SHED BONDS IS TO LEAVE OPEN OPTION TO EXPAND BALANCE SHEET IN FUTURE
  • FED'S DUDLEY: LIKELY WON'T RETURN TO PRE-CRISIS SIZE BOND PORTFOLIO
  • FED'S DUDLEY: PREFERS RETAINING CURRENT 'FLOOR' POLICY MECHANISM IN FUTURE, WITH PERHAPS $500 BLN - $1 TRLN IN EXCESS RESERVES
  • FED'S DUDLEY: REPEATS EXPECTS TO BEGIN SHEDDING BONDS LATER THIS YEAR OR NEXT YEAR

in which he pointed out that balance sheet normalization would likely lead to only a "little pause" in rate hikes to avoid concurrent policy moves.

  • FED'S DUDLEY: SHEDDING BONDS MAY LEAD ONLY TO 'LITTLE PAUSE' IN RATE HIKES; PERHAPS AVOID SIMULTANEOUS POLICY MOVES

As discussed before, the reason why the Fed is contemplating a concurrent approach is to prevent a flattening or outright inversion of the curve, and as the short end rises, selling the long end by the Fed would lead to a parallel steepening in rates, something which would be critical for US banks.

And while it is unclear if Dudley was the catalyst for today's move higher, what is clear is that some algos bought because some other algos bought.