The Yen pair invigorated daily lows during the early European session, although managed to support the 113.00 price mark and swiftly recovered few pips later. Fears of a quicker than expected upsurge in inflation and signs of a slowdown in the global economic recovery have been feeding worries about stagflation.
Elsewhere, the contagion risks from China Evergrande’s debt crisis took its toll on the global risk sentiment. This, in turn, benefitted the safe-haven Japanese yen and triggered an intraday turnaround for the USD/JPY pair from mid-113.00s, or the highest level since December 2018 touched earlier this Tuesday.
Additionally, the markets have also begun pricing for the expectations for an interest rate hike in 2022 to counter the risk of inflation becoming too high. This was obvious from the recent rise in the US Treasury bond yields, driving the yield on the benchmark 10-year US government bond to four-month tops on Friday. On the other hand, the yield on the 10-year Japanese government bond remained near zero amid the Bank of Japan’s yield curve control policy.
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