The US Dollar Index, which measures the dollar against a basket of six major trading-partner currencies, fell 0.19% to 101.79, erasing the gains that had pushed it to 101.98 on Monday.
The US dollar retreated in currency markets on Tuesday, surrendering some of its earlier gains and resuming a broader downward trend driven by a decline in US Treasury yields. This shift occurred against the backdrop of unprecedented demand for long-term Japanese government bonds—which pushed the yen higher—and a fragile calm on the streets of France, which allowed the euro to stabilize.
Record demand for Japanese bonds triggers a sharp rally in the yen
Among G10 currencies, the Japanese yen stood out, snapping a two-day losing streak and prompting a rapid unwinding of long positions in the US dollar.
Investors showed unprecedented demand for 20-year Japanese government bonds (JGBs). According to Reuters, the auction saw a record bid-to-cover ratio of 5.84—the highest since the 20-year maturity was introduced in 1987.
This massive surge in demand drove the yield on 20-year JGBs down by 6 basis points to 3.71%, signaling a strong institutional appetite to lock in elevated yields.
The sudden influx of capital into yen-denominated, duration-sensitive assets pushed the USD/JPY pair down by 0.3% to around 158.10—its best performance in three weeks—dampening the dollar’s recent upward momentum ahead of the Bank of Japan’s upcoming policy review. Euro pauses as unrest in France eases ahead of budget vote
The euro has stabilized after hitting its lowest levels since May 2025 last week, with the EUR/USD pair rising 0.2% to $1.1231.
Social unrest across France showed signs of a temporary lull overnight, following the imposition of strict municipal curfews in Paris, Nice, and several other major urban centers in the wake of days of intense anti-government protests.
Despite the temporary calm on the streets, French sovereign risk remains a primary headwind for the single currency. The spread between 10-year French OATs and benchmark German Bunds widened by nearly 10 basis points on Monday, reaching 147.3 basis points—a reflection of persistent institutional skepticism regarding the state of France’s public finances.
Currency desks are keeping a close watch on the lower house of the French parliament, where lawmakers are set to vote on the revenue side of the proposed 2027 budget. This represents a critical test for the administration of President Emmanuel Macron, which is seeking to rein in a budget deficit that stands at 5.4% of GDP.
"News from France is likely to remain 'bearish' for the euro, as the lower house votes today on the revenue component of the proposed 2027 budget," said Chris Turner of ING.
"Both the left and the right have introduced numerous amendments to the original bill, meaning that even if it passes, the markets are unlikely to react with any enthusiasm." Meanwhile, the British pound showed significant gains against the US dollar, rising 0.4% to $1.3350.
The pound received fundamental support from official UK employment data, which revealed unexpected strength in both wage growth and job creation.