US Dollar: Higher yields support currency – MUFG
MUFG’s Derek Halpenny notes the US Dollar (USD) is strengthening as US fixed income sells off, driving global bond weakness and higher yields across the curve. A poor 5-year UST auction and strong US and global PMIs are reinforcing hawkish Federal Reserve (Fed) rhetoric.
The US Dollar is gaining strength as US fixed income investments are selling off, leading to a decline in global bond markets and higher yields across the yield curve. This trend is fueled by poor performance in the 5-year US Treasury (UST) auction and strong data from both the US and global manufacturing and services sectors, which have prompted the Federal Reserve to maintain its hawkish stance.
In addition to these factors, rising Brent oil prices and potential US diesel export bans are increasing inflation risks, further bolstering the Dollar and posing challenges to carry trades in a low FX volatility environment. The combination of these elements creates an environment conducive to a "pain trade," with investors forced to sell at elevated levels and potentially allowing the Dollar to continue its upward trajectory.
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