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The dollar is growing following the yield

Chart of the Bloomberg dollar index and the yield on 10-year US bonds. Source: Bloomberg

Dollars rose on Friday, almost compensating for its losses for the week, while investors tried to assess how improved forecasts for global growth correlate with the recovery in US yields. The Bloomberg Spot Dollar Index rose 0.2%, outperforming most Group 10 peers, amid financial flows at the end of the month. The yield on 10-year Treasury bonds rose 1 bp. per day and by 9 bp. a week up to 1.64%.

The eurozone economy plunged into a double recession at the beginning of the year, in contrast to the US, where annual growth was 6.4%, fueled by a sharp increase in household spending. The Canadian dollar topped the group, pushing recent earnings to their highest level in three years.

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“Yields are rising again (slowly) and FX doesn’t know how to react,” writes Societe Generale analyst Keith Jax. “The question for May will be whether the dollar will strengthen again if the upward trend in US yields resumes.”

USD / CAD fell 0.1% to hit 1.2268, the lowest level since February 2018. The technical outlook for the loonie against the US dollar as well as the yen (JPY) is pretty strong.

AUD / USD looked better, but the quotes practically did not change at around 0.7768; the pair gained 0.4% over the week, posting gains for the fourth straight week. The Aussie rallied Friday on Friday, driven by demand from local exporters at the end of the month, as well as macro buying against the yen, according to Asian currency traders.

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USD / JPY has not changed, remaining in the region of 108.92; the pair is up 1% over the week.

“The lack of positive surprises in US macro data yesterday meant that concerns about inflation could ease slightly and that current UST yield growth could be limited,” which helped narrow the gap between the UST and JGB, explained Yansi Tan, currency strategist at Malayan. Banking Bhd. in Singapore. “It could also help limit interim yen losses.”

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