With the Dow Jones Industrial Average falling more than 100 points at the open, currencies are on the move. Interestingly enough, the dollar is not benefitting from any safe haven flows. Instead, the greenback is trading lower against all of the major currencies with the exception of the CAD but that could change quickly as USD/CAD gives up its earlier losses. Despite better than expected economic data, the buck is down 1% versus the Swiss Franc and more than 0.8% versus the euro and Japanese Yen. The trigger is U.S. yields. Ten year bond yields have fallen 6bp this to 2.8% its lowest level in 6 weeks. This move drove USD/JPY below 104, putting the currency on track to test 103. In the following chart, there is a very clear intraday correlation between 10-year Treasury yields and USD/JPY. If yields drop below 2.8% in a meaningful way, USD/JPY could take out 103.

Weaker economic data is the reason why the dollar is not benefitting from risk aversion. This morning’s jobless claims report has been far from impressive. Claims held steady near 326k, house prices grew at a slower pace, the expansion in the manufacturing sector slowed according to Markit Economics and leading indicators rose 0.1% compared to 1% the previous month. Existing home sales beat expectations but the 0.4% gap between what economists forecasted and the actual report was more than offset by the 1.6% downward revision in November. This contrasts with the strong PMIs from the Eurozone, healthy labor market numbers from the U.K. and stronger than expected consumer spending in Canada. These second tier economic reports do not indicate that the U.S. economy is in trouble but with the Federal Reserve meeting next week, these reports give investors a stronger reason to believe that the central bank could take a break from reducing asset purchases this month.

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