The dollar ended trading yesterday higher in a risk-off push, driven by higher bond yields as equities were also pressured lower. That points to some deleveraging flows with the negative risk appetite feeding back into some bond flows at the end - but not much.
That has a recognisable ring to it as it is the same dial we've heard back in April and also in early May. Oh, that familiar feeling..
USD/JPY is the big mover on the new week in this regard, climbing by over 300 pips to above 130.00 for the first time since 12 May. The early May and end-April highs just above 131.00 will be a key focus point as buyers return after three weeks of selling/retracement.
The rise comes as bond yields also arrest their decline over the past three weeks and have turned higher again this week. 10-year Treasury yields are up 18 bps to 2.92% currently, as the inflation focus in Europe earlier in the week is spurring selling across the bond market space. 10-year German bund yields are up to their highest since early May at 1.18% - gaining 22 bps this so far this week:
Elsewhere, equities are looking sluggish again after finding some relief last week. US stocks snapped a string of weekly losses but as mentioned before, it is hard to pin any gains now to anything else but a relief rally. The storm clouds are still brewing and the bond market is hinting at surging inflation pressures once again, providing little comfort.
Wall Street closed lower across the board yesterday (S&P 500 down 0.7%, Nasdaq down 0.7%, Dow down 0.5%), posting back-to-back daily losses for the first time in roughly three weeks (for the S&P 500 and Nasdaq, two weeks for the Dow).
The early June flows suggest that markets haven't forgotten about what happened in April and early May. And while we aren't at such stretched levels again just yet, it is but a reminder that any relief in the bond and equities selling may not last too long given the outlook and economic considerations.
The same can be said for any substantial drop in the dollar. As long as the Fed is not backing down, it is tough to find a more well-rounded hedge than the greenback among other major currencies for the time being.