Dollar Holds Firm as Markets Weigh Bond Rebound and Rate Hike Impact

The US dollar is holding its ground despite the recent recovery in stocks and metals. The Treasury market is also seeing some buying, which could be a wave four rebound before yields push higher. If this happens, it would likely support another leg up on the dollar.

However, there is still some uncertainty in the market. The Bank of Japan raised interest rates by 25 basis points to 1.25%, but the yen did not weaken as expected. Instead, it was seen as a largely priced-in decision after the sharp USD/JPY decline from September highs.

Two members of the Bank of Japan's board preferred to keep rates unchanged, which limited the hawkish impact of the hike. For now, markets are seeing some recovery in risk assets and metals, but the dollar remains firm.

The next important signal for the market could come from US Treasuries. If bonds complete this wave four rebound and turn lower into wave five, yields could resume higher and support another leg up on DXY.