USD is the top performer among major currencies on Wednesday as better than expected ISM manufacturing data added worries that solid growth may force FED for more aggressive tightening to contain high inflation. Also June marks the start of the Fed's plan to reduce its balance sheet, while markets are pricing in a 50 bps interest rate hike later this month and in July. In addition, the market sees a 70% probability of a 50 bps hike in September. Additionally new month flows may contribute to greenback strength and higher treasury yields. The yield on the US 10-year government bond rose to above 2.93%. It is worth mentioning the comments of Fed Daly, who expects rates to return to the neutral level very quickly - indicating that this year we will surely see the 2.5% level.
USDJPY pulled back at the end of May after an impressive rally which started at the beginning of 2022. Nevertheless sellers failed to stay below local support at 127.50 and the pair is currently heading towards recent high at 131.20. Source: xStation5
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