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US Dollar Reverses Lower As US Yields Plunge

FOREX
  • US 10-year note yields dropped back below 3% for the first time in 3 weeks, weighing heavily on the greenback as currency markets dealt with additional month-end dynamics.
  • The greenback had extended gains initially on Thursday, sitting in firm positive territory approaching the NY crossover. Potential profit-taking ahead of month-end rebalancing may have been a factor for a swift reversal in sentiment and a consistent grind lower through the US trading session.
  • Furthermore, the dollar weakness was exacerbated after data on US consumer spending and the key PCE deflator gauge advanced less than expected, signaling US inflation may have peaked.
  • Still, the dollar is still headed for its best quarter since 2016, helped by higher rates and haven flows amid downbeat expectations for economic growth and the DXY remains up just shy of a half percent this week.
  • EURUSD had significantly narrowed the gap with 1.0350, May 13 low and the technical bear trigger. Troughing at 1.0383, the pair was a key beneficiary to the reversal in greenback sentiment, rising over 100 pips to print fresh highs at 1.0488.
  • Strength in the Japanese Yen was a notable standout today as the interest rate differential between 10-year U.S. notes and Japanese notes narrowed by roughly 10 basis points. The pair has firmly faded off the cycle peak posted yesterday at 137.00, the highest print since 1998. JPY is the strongest currency across G10, up 0.75% against the US dollar.
  • Eurozone June CPI Flash Estimate y/y headlines the data docket tomorrow before the US ISM Manufacturing PMI marks the final major data point of the week.
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