USD/JPY drops below 108 as 10-year US T-bond yield extends slide

• The 10-year US Treasury bond yield erased all of Monday's gains.
• US Dollar Index stays in the negative territory on Tuesday.
• Fed's Mester voices her opposition to a rate cut. 

The USD/JPY pair struggled to build on Monday's gains and came under renewed bearish pressure in the American trading hours. As of writing, the pair was down 0.36% on the day at 108.05.

The positive risk sentiment, which was fueled by the U.S. and China suspending the trade war with an aim to restart negotiations, on Monday drove the 10-year US T-bond yield higher and helped the pair traction with the JPY losing interest as a safe-haven. On Tuesday, however, the market mood turned sour and the 10-year T-bond yield dropped below the critical 2% mark with a daily loss of nearly 2.5%.

Following Monday's rally, major equity indexes in the U.S. started the day flat but they all recently turned negative on the day to confirm the risk-off atmosphere.

On the other hand, despite the hawkish comments from Cleveland Fed President Mester, the US Dollar Index failed to carry its recovery into a second straight day and was last seen losing 0.1% at 96.72.

While speaking at an event in London, Mester argued that cutting the policy rate now could reinforce negative sentiment and encourage financial imbalances. "Some argue Fed should lower rates to push up inflation expectations, but it is not clear how effective this would be," Mester added.

Technical levels to watch for