The US dollar and sterling have stabilized after being sold off yesterday. The yen, which had begun recovering from a four-month low, is the strongest of the major currencies today, gaining around 0.5% against the dollar (@~JPY113.40).  

Global bond yields are softer. The BOJ stepped up its purchases of three-five year bonds to JPY330 bln from JPY300 bln, though kept its other purchases unchanged. The market responded accordingly and took Japanese rates lower. With a backdrop of softer global rates, it may not be a clean test of the market’s reaction function. The price action reinforces the importance of the 2.40%-2.42% threshold for the US 10-year Treasury yield.  

Most accounts appear to be giving the email’s of US President Trump’s son central role to yesterday’s dollar slide that saw the euro rise to new highs for the year. While there could be broad medium term political implications but perhaps the most important considerations was the obvious distraction to the economic agenda. At the same time, there are a couple of other factors at work as well.  

The Federal Reserve Board of Governors has four of the seven seats filled. Brainard’s cautious stance must be taken seriously. At the same time, her willingness to begin allowing the balance sheet to shrink illustrates a point we continue to make. A consensus on reducing the balance sheet appears to have been achieved, while a consensus on the next rate hike has not crystallized.   

Yellen’s testimony beginning today is one of the highlights of the week. However, it may be too much to expect her to break new ground. Not much new is known since the mid-June press conference. At most, she will put more flesh on the bones, and explain to the representatives, who are not economic or financial experts the trajectory of policy and the nuances of the balance sheet, and Phillip’s Curve.