FX Market Update—The USD is trading generally higher on the session, and the DXY is
breaking out of its March consolidation range, as US yields continue to push higher and
markets price in an ever more aggressive Fed. The 10Y US Treasury bond yield is trading a
little over 2.50%, helping drive a near 2% sell-off in the JPY today alone. The BoJ also
announced that it would buy an unlimited amount of bonds for the next three days to cap
domestic yields at 0.25%, underscoring its divergence with the global trend in long-term
rates and the tilt towards tighter monetary policy in may countries. The USD reached
JPY125 for the first time since 2015 and is trading higher against most of its G10 peers.
European stocks are firmer, despite the broader sell off in fixed income, but US equity
futures are trading in the red. Chinese stocks fell as China announced a sweeping
lockdown and testing regime in Shanghai to combat Covid. The move is likely to have
significant ramifications for Chinese growth and could spill over as another headwind for
global activity as investors continue to mull the fall out from the Ukraine war. Crude oil is
down nearly 4% at writing in response, with copper also displaying some softness in
overnight trade (while iron ore is trading marginally higher). Yields will remain the focus
for markets this week, with another strong NFP report Friday liable to cement
expectations that the Fed will up the pace of tightening at the May and perhaps beyond.
We remain broadly bullish on the outlook for the USD.
