Today’s Market Outlook
Middle East Progress Hopes Push Oil and U.S. Yields Lower; Dollar Rally Pauses
■ Market Summary
Market attention remains focused on:
・Middle East developments
・U.S. fiscal uncertainty
・The U.S. Treasury’s long-term bond buyback program
・Fiscal-consolidation measures from Treasury Secretary Bessent
In the London morning session, USD/JPY is trading near 159.30, while EUR/USD is around 1.1670.
USD/JPY briefly rose to around 159.49 before retreating into the low-159.20 range.
Pakistan announced that “important progress” had been made in discussions regarding the U.S.-Iran conflict, easing Middle East risk concerns somewhat.
NY crude futures have fallen toward $82, while the U.S. 10-year Treasury yield has declined from around 4.70% into the 4.66% range.
As a result, dollar buying has paused, with dollar selling gaining the upper hand in EUR/USD and GBP/USD.
■ Middle East Developments
At yesterday’s press conference, Treasury Secretary Bessent took a firm stance, stating that organizations assisting Iran with money laundering would be excluded from the dollar settlement system.
However, because he avoided specific references to China, the market reaction was limited.
Today, reports of progress in discussions involving the United States and Iran have pushed the worst-case Middle East scenario further into the background, at least temporarily.
Lower oil prices reduce concern about renewed inflation and weigh on U.S. long-term yields.
If this trend continues, it is likely to limit the dollar’s upside in the short term.
However, it remains unclear whether progress in negotiations will lead to a formal agreement or a broader de-escalation of tensions.
A single Middle East headline could still trigger sharp moves in oil, U.S. yields, and USD/JPY.
■ U.S. Fiscal Conditions and Long-Term Yields
U.S. government debt has reached approximately $40 trillion, and fiscal concerns remain deeply rooted in the market.
The Treasury has announced an expansion of long-term bond buybacks, but skepticism remains over whether this alone can contain rising long-term yields.
The U.S. 10-year Treasury yield has traded in a relatively elevated range of 4.60% to 4.75% since the start of August.
This week, markets are waiting for the details of fiscal-consolidation measures from Treasury Secretary Bessent, including the “3-3-3 Plan.”
If credible spending cuts or fiscal-reconstruction measures are announced, confidence in Treasuries could recover and long-term yields may decline.
Conversely, if the measures focus mainly on military spending and economic support, without meaningful fiscal improvement, Treasury selling and rising long-term yields could return.
■ Dollar Market
Dollar buying has paused in response to lower oil prices and declining U.S. long-term yields.
EUR/USD has risen toward 1.1674, while GBP/USD has moved near 1.3650, indicating broader dollar selling.
However, the dollar remains in a corrective phase following last week’s sharp decline. As long as U.S. yields remain elevated, downside in the dollar may also remain limited.
In addition to the simple relationship of higher yields supporting the dollar and lower yields weighing on it, markets should also remain alert to the possibility of “sell America, sell dollar” flows if U.S. fiscal concerns intensify.
■ USD/JPY
USD/JPY is trading near 159.30.
Persistent yen carry-trade demand continues to weigh on the yen, creating an environment in which USD/JPY is likely to attract buying on declines.
However, with the U.S. 10-year yield falling into the 4.66% range, the momentum to chase USD/JPY into the upper 159 range has been restrained for now.
On the upside, 159.50 is the first important level, followed by 160.00 as major resistance.
As USD/JPY approaches 160.00, concerns over possible FX intervention by the Japanese government and Ministry of Finance are likely to intensify again.
On the downside, the key question is whether the pair can break clearly below 159.00. If lower oil prices and falling U.S. yields continue, a correction into the upper 158 range is possible.
■ U.S. Housing Market
A concentration of U.S. housing-related data will be released today.
Persistently high long-term yields have pushed mortgage rates higher, maintaining difficult conditions for homebuyers.
Rising labor costs and material prices are also increasing pressure on housing affordability.
The market expects U.S. new home sales to decline modestly to 620,000 from 628,000 previously.
If housing data falls short of expectations, concerns over a U.S. economic slowdown could lower long-term yields and increase dollar selling.
Conversely, if the housing market proves resilient, U.S. yields may rebound and support dollar buying.
■ Key Events Today
・Germany August Ifo Business Climate Index
・Hong Kong July trade balance
・Hungary central bank policy rate
・U.S. June and second-quarter House Price Index
・U.S. June S&P Case-Shiller Home Price Index
・U.S. August Richmond Fed Manufacturing Index
・U.S. July new home sales
・U.S. August Conference Board Consumer Confidence Index
・Speech by Richmond Fed President Barkin
・U.S. two-year Treasury auction, $69 billion
■ Key Points for London and New York Trading
① Whether progress in U.S.-Iran talks continues
② Whether NY crude finds support around $82
③ Whether the U.S. 10-year yield declines further from the 4.66% range
④ Whether USD/JPY can hold above 159.00
⑤ Whether EUR/USD can maintain the 1.1670 range
⑥ Whether U.S. new home sales exceed the 620,000 forecast
⑦ Strength or weakness in U.S. consumer confidence
⑧ Short-term yield reaction after the U.S. two-year Treasury auction
⑨ Further details on Treasury Secretary Bessent’s fiscal-consolidation measures
■ Summary
Hopes for progress in the Middle East have lowered oil prices and U.S. long-term yields, causing dollar buying to pause.
USD/JPY remains in the 159 range, but lower U.S. yields have limited momentum toward the upper 159 range.
In the short term, the correction from last week’s dollar weakness and persistent yen carry-trade demand may continue to support a gradual yen-weakness trend.
However, Middle East developments, U.S. fiscal-consolidation measures, and U.S. housing data could shift the direction of oil, U.S. yields, and the dollar.
Markets will monitor whether U.S. long-term yields continue to decline or turn higher again on renewed fiscal concerns, using that reaction to assess the next direction for the dollar.
