Dollar Strength Sparks Overbuy Concern Amid Rising Yields

The US dollar continues to strengthen across major FX peers as investors factor in expectations of higher inflation and central bank rates.

This has led to a rise in yields, with some arguing that it's not an inflation story. However, the Reserve Bank of Australia (RBA) took a hawkish stance today by announcing a 25bp increase in its policy rate, which could signal further action if needed.

The US dollar index is now in overbought territory, suggesting that the greenback may have been bought too rapidly and could soon see a downside correction. This has sparked questions about what would trigger such a move when yields are rising so rapidly.