USD/JPY slides 50 pips then rebounds; crude climbs on geopolitical reports

Markets:

• Gold rose $20 to $4176.
• The US 10-year yield declined 5.4 bps to 5.24%.
• WTI crude oil increased $2.55 to $92.97.
• The US dollar was the strongest major currency, while the euro lagged.
• The S&P 500 gained 0.3%.

The session ahead of nonfarm payrolls was eventful, with the dollar gaining ground on the back of a strong prices-paid subindex in the ISM manufacturing survey. That pushed long-term Treasury yields to their highest levels since 2002 for a short time, with the 30-year reaching 5.69% as the concerning pattern persisted.

However, those gains soon reversed, helped by remarks from Fed's Jefferson who echoed Williams from earlier in the week, suggesting the Fed should take its time before raising rates again. The probability of a rate hike on October 28 now stands at 26% according to fed funds futures, less than half what it was a week ago.

The most surprising development on Wednesday may have been a sharp slide in USD/JPY during the early US session, with the pair falling 50 pips in a sudden move not linked to any news. Intervention was the immediate suspicion, though it would have been small and occurred at an odd time and level. Regardless, the market ignored the drop, buying it up, and the pair ended the day 63 pips higher at 158.01.

Oil was a frequent topic of discussion. A Wall Street Journal report stated that President Trump had told aides he was thinking about restarting airstrikes after the midterm elections, while another report indicated that Iran had proposed allowing nuclear inspections in exchange for sanctions relief. Some reports pointed to increasing exports from the Strait of Hormuz and Saudi Arabia’s east-west pipeline, but that did not affect market sentiment as crude prices rose steadily. Late in the day, Iran’s Fars news agency reported that a tanker had been struck near Oman.