US FX WRAP: Dollar slightly firmer amid US yield bounce

DXY was slightly firmer today, albeit lagging the notable reversal in long-end US Treasury yields. Behind the mixed action in fixed income and FX could be reduced USD attractiveness from a yield standpoint, given the US Treasury’s apparent preference to cap the recent rise in yields, while its major peers have signalled no similar restraint. Meanwhile, US data showed continued stability in the labour market with initial claims still hovering around 200k; continuing claims rose but remained well within YTD ranges. Philly Fed beat, in what was a strong manufacturing report, helped by significantly improved expectations of future business conditions. Elsewhere, Fed speak saw Daly (2027 voter) note that policy is in a good place to keep watching the data, whilst Musalem (2028 voter) maintained the view that hiking rates now could save more aggressive action later and noted Super El Nino might be the next supply shock. Now, DXY trades around 98.89, still well below the pre-Treasury announcement level of 99.375.

CHF and JPY lagged in the G10 FX space, as higher US yields dented carry-trade prospects for the haven alternatives, which extended to spot gold.  Currency-specific newsflow was light for the havens. The continued rise in energy prices amid the lack of progress between the US and Iran may limit further strength in havens until a long-term resolution becomes clear.

AUD/USD was weighed by a softer-than-expected employment reading. Australian employment unexpectedly declined 15.8k (exp. 15k, prev. 76.3k), weighed by a reversal in part-time employment -32.2k (prev. 47k). Consequently, the u/e rate ticked higher to 4.5% from 4.4%. AUD/USD hit lows of 0.71028.