Dollar Gains Moderate as US Yields Retreat Amid Ongoing Risk
US Dollar gains have moderated as US yields retreat and risk appetite improves after a tech-led selloff. According to Scotiabank strategists Shaun Osborne and Eric Theoret, high-beta currencies are outperforming while the Euro and British Pound are edging higher but failing to fully exploit positive data.
The strategists attribute the moderation in Dollar gains to softer yields and improved risk appetite. They note that despite renewed gains in energy prices, there is a not insignificant risk of a Fed hike next week, with swaps pricing indicating 7bps of tightening priced in.
Osborne and Theoret caution that geopolitical tensions around Iran and upcoming Federal Open Market Committee (FOMC) risks are keeping the Dollar and US yields relatively supported. They also believe that investors may show a stronger preference for avoiding riskier assets into the weekend, which will likely support the USD and US yield.