I think there's a bit of a catchup trade ongoing in FX today after the recent drop in Treasury yields. US 2s are down to 2.33% from as high as 2.59% on Monday.
The dollar ignored that decline on Monday and Tuesday but now it's payback time.
So while we're seeing some large moves in the dollar today, they generally just bring the dollar back to square on the week. Arguably, there's room to move lower to catch all the way up to what's happened in the bond market.
I might have expected a bounce in the dollar after yields were higher-than-expected at the US 30-year reopening auction but that hasn't been the case. Yields have moved up but the dollar hasn't. So of that is the improving risk trade but that leaves us in a bit of a circular argument because it all ties back to yields.
And even beyond that, it ties back to the idea that we're at 'peak inflation' which is the flavour-of-the-week trade.
What won't last is a continued rise in oil (+10% this week) and natural gas prices (+50% in a month) along with the idea of peak inflation.
So what next?
It's a great environment for macro traders because it will come back to the data. The March US retail sales report is due tomorrow.
