US FX WRAP: Dollar weighed by drop in US yields

USD was marginally weaker as yields pullback pressured the greenback, though risk-off trade across equities on AI concerns limited downside. The declines in yields came from a flight to haven amid risk-off, somewhat dovish ECB Minutes, and US President Trump saying no strikes on Iran will occur before the midterms amid "productive" talks with Iran. Despite Trump, in his comments, rejecting recent reports that the admin was gearing up for strikes on Iran before the midterms, oil prices held onto gains, as details beyond the midterms on resolve were absent. On the flip side, AI concerns arising from an unexpected USD 20bln shortfall in signalled OpenAI annualised revenue kept a floor for the DXY. DXY trades around 102.13 within a 102.033-102.467 intraday range.

Fed's Waller offered a hawkish surprise, expecting additional hikes to support the return of inflation to 2% if inflation comes in as expected. Though he caveated, hikes do not need to be consecutive, but be in an appropriate period of time.

CAD, CHF, EUR, GBP, and NZD saw modest strength against the buck; CAD outperformed on higher crude prices, while AUD lagged.

For the Euro, ECB Minutes were the highlight, which contained a dovish line. "The repricing at the long end of the yield curve, provided it remained orderly, also supported the intended monetary policy stance and could have implications for appropriate policy rates in the future." This implies the ECB views recent yield moves as having helped its tightening aims, further dampening already declining rate hike expectations. EUR/USD rose back above 1.12 to ~1.1211 while the 10yr OAT-Bund spread fell 1.9bps to 136.1bps.