USD/JPY, EUR/USD flows: strong data, market could test Treasury to entice further interventions
US30s give back some of the kneejerk relief and parts of the US economy still running strong
The market might test the Treasury after its recent intervention
If so, that could further complicate the fiscal-monetary blur
US data comes in strong again on the manufacturing surveys with Philly Fed extremely high readings echoing some of the extreme highs seen in the NY survey. Perhaps most importantly, with the economy - or at least some elements of it - running hot, and with some of the announcement effect ebbing, US30s are back out to 5 1/4 %, reversing around half of this week's pullback from the highs.
There remain very clear risks that the market decides to test the Treasury's recent 'intervention' and create additional pressure for more action. The more Treasury gets sucked into debt management moves that blur the line between fiscal and monetary, and between management and monetising (or liquidity-ising), the more that would add complications for the dollar. Incidentally, Warsh's aspirations on the balance sheet, or at least the elements of it that involve reducing long end holdings, may have to be kicked into the long grass in this political environment.