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Dollar Slips as Record Demand for Japanese Bonds Boosts Yen
The U.S. dollar retreated across foreign exchange markets on Tuesday, giving back some of the previous session's gains as a surge in the Japanese yen weighed on the greenback. The yen's rally was fueled by record-breaking demand for a long-term Japanese government bond auction.
The U.S. Dollar Index, which measures the currency against a basket of six major peers, fell 0.19% to 101.79. The decline reverses a modest rise on Monday and continues a broader downward trend influenced by falling U.S. Treasury yields.
Record JGB Demand Lifts Yen
The Japanese yen was the standout performer among G10 currencies, ending a two-day slide and forcing a significant unwinding of long USD/JPY positions. The catalyst was exceptional investor appetite for an auction of 20-year Japanese Government Bonds (JGBs).
According to a Reuters report, the auction drew a bid-to-cover ratio of 5.84x, the highest level recorded since 20-year JGBs were first issued in 1987. This powerful demand, indicating a strong desire by institutional investors to lock in higher yields, sent the 20-year JGB yield tumbling by as much as 6 basis points to 3.71%.
The rush of capital into yen-denominated assets caused the USD/JPY pair to fall 0.3% to trade around 158.10, marking the yen's best performance in three weeks and curbing the dollar's recent upward momentum ahead of the Bank of Japan's next policy meeting.
AdEuro Stabilizes Amid French Political Risk
The euro stabilized after hitting multi-year lows, with the EUR/USD pair rising 0.2% to $1.1231. A temporary easing of violent anti-government protests in France provided some relief after authorities imposed strict curfews in major cities.
However, French sovereign risk remains a primary headwind for the single currency. The spread between 10-year French government bonds and benchmark German bunds widened by nearly 10 basis points to 147.3 basis points on Monday, reflecting persistent investor concern over France's public finances. Traders are now focused on a key vote in the French National Assembly on the revenue portion of the 2027 budget proposal.
"The news from France is still a net negative for the euro as the lower house of parliament votes on the revenue side of the 2027 budget bill today," said Chris Turner, a strategist at ING. "Markets are unlikely to welcome the budget's passage given the large number of amendments tabled."
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