- Larger-than-expected Treasury issuance could lead to worsening budget deficit concerns
- Nikkei reported that BOJ is considering a further adjustment to its YCC framework
- FOMC expected to keep rates on hold and maintain a tightening bias
Forex traders always brace for a big week anytime you have an FOMC decision and the nonfarm payroll report on the same week, but this week is different. Wall Street will also be paying close attention to the BOJ rate decision and the Treasury’s quarterly refunding announcement. Earlier on Monday, the Nikkei reported that is set to consider further adjustments to its YCC framework at its Tuesday meeting. Currency traders know the BOJ needs to lift the yield cap, but policymakers have been effective in delaying expectations on when that will happen. The bond market appears to be pressuring central banks and a tweak to YCC seems likely, which means the departure from negative rate territory could happen at the January BOJ decision.
On Wednesday, it won’t just be fixed-income traders paying close attention to the 8:30 a.m. EST release of the Treasury quarterly funding announcement. Every trader knows that if the bond market selloff resumes, that could have a crippling effect on growth prospects and trigger a move into safe-havens. If the Treasury auction size is larger than expected, budget deficit concerns will grow, which could lead to continued tepid demand during future Treasury auctions. Everyone will want to know how far out they go out on the curve and how much will they sell.
The US dollar could go on a rollercoaster as bond market volatility is expected to be elevated given all the rate decisions and Treasury’s funding plans. Dollar-yen fell over 70 pips on the Nikkei report that BOJ could let the 10-year exceed 1.00%, but that doesn’t mean the dollar’s days are numbered. The US growth story could still remain intact post-Fed and if the NFP report still shows the labor market remains healthy and if Wall Street isn’t spooked by the Treasury.
See this week's economic calendar
