Dollar Gains Strength as Hawkish Fed Rhetoric Intensifies

The US Dollar has gained strength due to higher yields in the US fixed income market. According to MUFG's Derek Halpenny, a poor 5-year UST auction and strong US and global PMIs have reinforced hawkish Federal Reserve rhetoric.

A 5-year UST bond auction yesterday saw USD 70bn worth of bonds sold at a yield of 5.033%, the highest level since June 2006. The bid-to-cover was 2.21, lower than the 6mth average of 2.33.

The US and global PMIs for September surged, with the Global Composite PMI increasing to 58.4 in September, the highest level since July 2021. This has left FX more vulnerable to a carry unwind given the low FX volatility environment.