US dollar takes it all back as yields turn higher

The dollar is going for a ride in the aftermath of the CPI report. EUR EUR The euro (EUR) is the official currency of the European Union (EU) and 19 of 27 member states at the time of writing. It is the second most-traded currency worldwide in forex markets after the US dollar.The euro was originally introduced back on January 1, 1999, having replaced the European Currency Unit. Banknotes and physical euro coins subsequently entered circulation only in 2002.Upon its adoption, the euro replaced domestic currencies in participating EU member states. The rise in its value The euro (EUR) is the official currency of the European Union (EU) and 19 of 27 member states at the time of writing. It is the second most-traded currency worldwide in forex markets after the US dollar.The euro was originally introduced back on January 1, 1999, having replaced the European Currency Unit. Banknotes and physical euro coins subsequently entered circulation only in 2002.Upon its adoption, the euro replaced domestic currencies in participating EU member states. The rise in its value Read this Term/USD rose to 1.0832 but has given most of the gains back in a return to 1.0780.

The initial move lower in the US dollar US Dollar The US dollar, (symbol $, code USD) is the fiat currency of the United States of America (USD) and the most widely traded currency globally. It was introduced into the US in the late 18th Century, with paper notes not being distributed until the following century. The US dollar, also informally known as the greenback, is the world’s most foremost reserve currency, due in large part to the importance of the US economy on the world stage. Once backed by gold (in the 1900’s), the USD is now a purel The US dollar, (symbol $, code USD) is the fiat currency of the United States of America (USD) and the most widely traded currency globally. It was introduced into the US in the late 18th Century, with paper notes not being distributed until the following century. The US dollar, also informally known as the greenback, is the world’s most foremost reserve currency, due in large part to the importance of the US economy on the world stage. Once backed by gold (in the 1900’s), the USD is now a purel Read this Term came as the market largely priced out the chance of a 50 bps hike in February. Morgan Stanley is also out with a note saying the Fed will hike 25 bps more in February and that will be the end of the hiking cycle.

However the bond market is struggling for direction. Yields initially fell lower today and US 10s hit 3.45% but have rebounded to 3.53%.

I continue to point to BOJ-inspired flows as a big skew in the market that's sending false signals. USD/JPY is down 212 pips today after a report indicated the BOJ is worried about the consequences of QE and YCC.

The result was likely JGB selling and Treasury buying but the broader market read the fall in US yields as a dovish signal. Those flows have been absorbed now and the dollar has bounced.

The whole scenario highlights the importance of next week's BOJ meeting, which is currently an underrated risk.