USD/JPY runs to 108.24

USD/JPY runs to 108.24

The odds of Fed rate cuts drifted lower after a strong retail sales number for June. The market continues to price in a certainty of a 25 basis point cut but the odds of a 50 bps move have fallen to 28% from 33%.

More importantly, the big quest is whether this is going to be a rate-cutting cycle down close to zero or just a couple 'insurance' cuts. So long as the consumer and economy holds up, the Fed won't want to get much below 'neutral', which has moved down but is still above 1.50%.

The market reaction to the data -- which was strong -- underpinned the questions the market is struggling with. USD/JPY is mostly a proxy on rates and it rallied to 108.24 from 107.95. It remains at the highs of the day.

Meanwhile, the dollar is down against the loonie in part because the Canadian currency is more of a proxy for global demand.

The euro and pound were also able to largely shake off the US retail sales report because paints a better global picture.

Keep a close eye on the bond market. US 10-year yields are up 4.2 bps to 2.13%. Last week's high was 2.148%.