Inside the Currency Market: Mechanics, Valuation, and Strategies

Cross Pairs, Bonds, and Yields

The question of how will British pound/Japanese yen and Australian dollar/Japanese yen trade in relation to bonds and yields is constructive. The answer depends on which market.

In each respective market, both pairs will follow bond prices up and down. The British pound will follow gilts and Australian dollar follows Commonwealth bonds. This allows for stability of these pairs and allows carry traders to safely earn their yields over time by the difference of interest rates between their respective nations. In Tokyo trading, British pound and Australian dollar will seek yields. In Australia and London trading, the Japanese yen will seek yields. In U.S. markets, the answer is quite different.

In U.S. markets, both ...