US FX WRAP: Dollar strengthens on global risk-off mood

The dollar's strength today reflects a global risk-off sentiment, driven largely by rising government bond yields amid intensifying inflation concerns.

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US FX WRAP: Dollar strengthens on global risk-off mood

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USD was firmer in response to a global rally in government bond yields as inflation concerns intensified. A longer duration of the conflict is being increasingly considered as we look to conclude another week of no progress towards a long-lasting resolution. Overall, the Trump-Xi meeting offered little new on Iran, apart from both wanting the obvious, the Strait of Hormuz to be open. Trump, speaking to Fox News, said he is okay with Iran suspending its nuclear programme for 20 years, but there has to be a real commitment. Nonetheless, oil prices settled near highs as tangible progress remains to be seen, leaving the US 2yr at a new YTD high of 4.086%. Aside from the above, newsflow was light as global risk-off in equities contributed towards the USD strength and underperformance in high beta FX. DXY gained every day this week, ending at WTD highs of from the 98.04 open.

JPY saw some relative outperformance in the G10 space despite the uptick in global yields and higher oil prices, as lacklustre risk-taking worked to its benefit. USD/JPY now trades ~ 158.71, nearing the 160 level that participants may be wary of given the recent intervention. It remains an open question how effective the intervention will be, given the factors that would likely drive JPY strength are factors outside the MoF's control

Antipodes were hit the most to end the week, weighed by the risk-averse mood, a broad sell-off in metals, and higher energy prices. AUD/USD now trades around 0.7150 and NZD/USD at 0.5840.

Context

The lack of substantial developments in geopolitical conflicts and a firm oil market further supported the USD, while high-beta currencies, particularly from the Antipodes, faced significant declines due to this aversion to risk. Overall, the continued uncertainty in both markets and policy suggests the USD may maintain its strength in the near term, especially if the risk mood persists.

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