Research Team at Lloyds Bank, suggests that financial market conditions continued to deteriorate overnight, led by a 5% decline of the Nikkei, a decline of the 10y JGB yield into negative territory and USDJPY slipping below 115. Key Quotes “The moves prompted comments from Japanese Finance Minister Aso that he will continue to monitor the FX markets. Against the backdrop of rising market tensions in recent days, pricing for Fed tightening has continued to fade with the implied yield on the Dec 2016 Fed funds future falling 6bp to a new contract low of 47bp. Upcoming focus will be on Chair Yellen testimony on Wednesday when she will have to balance between the improvements in the labour market vs the impact of tightening monetary conditions. The market, however, does not appear to be convinced that central banks can provide enough support given the dis-inflationary headwinds that continue to push against the global economy. We expect the USD to continue to struggle vs. the EUR and JPY in the near-term, with stabilisation in financial conditions likely a pre-requisite for a rebuilding of Fed expectations. In contrast, we think the USD should be able to rebound vs. the commodity bloc in this environment. Today data is limited to the NFIB small business optimism measure and the JOLTS job opening survey. More significant data lies ahead on Friday when we get the release of January retail sales.” For more information, read our latest forex news.