Having enjoyed a strong 3% rally so far this month, the dollar has now entered a consolidatory phase. Driving that may be the fact that the rise in longer-dated US Treasury yields appears to have stalled at the 3% area, consistent with the 10-year US real yield testing zero for the first time since early 2020. What does it mean for FX? In the opinion of economists at ING, the dollar should stay broadly bid.
Any short-term dip in the dollar to prove temporary
“3% seems a barrier for the long end of the US Treasury curve as does the 0% level for the 10-year US real Treasury yield. However, expectations for Fed rate hikes remain strong and the dollar should stay supported on dips.”
“The US data calendar is light today – FOMC Chair Jerome Powell and the European Central Bank's Christine Lagarde speak in Washington – and we expect DXY to hold gains over 100.”
“The People's Bank of China did not fix the renminbi any weaker than models had suggested – but markets are still running with the theme that China would not mind a weaker currency right now – a theme that is generally bearish for Asian FX and bullish for the dollar.”