US Dollar Rebounds Ahead of Nonfarm Payrolls Report Amid Rising Yields

The US dollar has regained some ground ahead of the July nonfarm payrolls report, which is set to be released today. The USD/JPY pair has broken above the 200-day moving average resistance at around 158.00, thanks in part to a rise in US yields.

The 2-year US Treasury yield has increased by about 7bps from yesterday's low, triggered by a report that Fed Chair Kevin Warsh would be prepared to raise interest rates at the September meeting if inflation readings are hot and market expectations for increases in borrowing costs escalate.

Warsh acknowledged making mistakes in his first 10 weeks as Fed Chair, including failing to reinforce price stability messages and sowing confusion over whether his longer-term plans to reform the Fed could affect near-term policy decisions. The report may be seen as a pushback against initial market moves that triggered a steepening of the US yield curve.

The joint intervention by the US Treasury and Japan, along with the potential use of the Fed's FIMA repo facility, suggests policymakers are concerned about US Treasury market instability risks and upward pressure on US yields. However, it is unclear why Japan would incur costs using the facility when they could sell US Treasuries.