US FX WRAP: Dollar boosted by higher yields; CHF & JPY underperform

USD was firmer against all major peers as positive correlation increased with short-end US Treasury yields. Higher oil prices were partially behind the move higher today in yields as amid the wait for the expected reopening of the Strait of Hormuz; tensions between the Houthis and Saudis worsened, while initial reports of the Iran-Oman management deal for the Strait of Hormuz contain unfavourable terms towards the US and the GCC.

Also lifting US yields was an FT report that Fed Chair Warsh is willing to hike in September if inflation prints in the coming weeks are hot and markets increase expectations for such a move, sources said. Meanwhile, US data was met with a muted reaction. Claims were little changed W/W, Challenger Layoffs eased, and Unit Labour Costs eased more than expected in Q2.

DXY now trades around intraday highs of 100.02

CHF and JPY lost out to the US dollar due to a more attractive US yield environment. USD/JPY was subject to further sharp moves in either direction, now trading at 158.40, well off the 155.226 WTD low. Technicians flagged 158.57 as a key fib level - a level it tested before swiftly briefly dropping, before paring once again.

USD/MXN was little changed following the Banxico decision to hold rates as widely expected at 6.5%. The central bank maintained policy guidance, whilst now it expects a more gradual decline in headline and core inflation than previously anticipated. It now expects headline inflation to return to target in Q4 2027, vs Q2 2027 previously.