Global currency markets are navigating a complex intersection of geopolitical risk, monetary policy divergence, and technical repositioning as major central banks prepare for critical decisions this week. The Middle East conflict continues to weigh on risk sentiment and energy prices, while divergent inflation dynamics across developed economies are setting up sharply different policy trajectories for the Federal Reserve, European Central Bank, Bank of Canada, and Bank of Japan. The greenback has strengthened to two-month highs on robust employment data, but the technical picture remains fluid across most major currency pairs.
United States
The US dollar has emerged as a significant beneficiary of recent data surprises and rising real yields, with the Dollar Index reaching two-month highs near 100.10 ahead of the weekend. The greenback posted an ostensibly bullish outside up day by trading on both sides of the previous session’s range and closing above its high, setting up a potential test of the year’s high recorded at the end of March near 100.65. The strength in the dollar reflects several interconnected dynamics that are reshaping market positioning across asset classes.
The correlation structure between the greenback and US financial variables has reached extreme levels not seen in years. The 30-day correlation of changes in the Dollar Index and the two-year US yield stands at approximately 0.75, near the highest level since late 2016. Similarly, the correlation between the Dollar Index and the 10-year yield has also reached near 0.75, marking the highest reading since the end of 2024. These elevated correlations underscore the degree to which monetary policy expectations and yield dynamics are driving currency valuations. Last month, the rolling 30-day correlation between the Dollar Index and the S&P 500 reached almost -0.75, its most extreme level since the fourth quarter of 2022. While this inverse relationship has moderated to closer to -0.65, it remains more extreme than levels observed throughout 2025, highlighting the persistent risk-off tone in markets.
The geopolitical backdrop adds another layer of complexity to dollar dynamics. The greenback remains highly sensitive to Middle East developments, and when news provides reason for hope regarding an extended ceasefire, the dollar typically experiences selling pressure. However, the persistence of tensions and the lack of meaningful progress toward resolution have supported a bid for the safe-haven currency.
The economic data calendar for the coming week will provide critical inputs for Fed policy expectations. The most important high-frequency data point is the mid-week release of May CPI, which carries outsized significance given current inflation concerns. The Bloomberg median forecast calls for a 0.5% rise in the headline rate and 0.4% in the core measure. Given base effects, the year-over-year rates are likely to rise to approximately 4.2% from 3.8% for the headline and to 3.1% from 2.8% for the core. These figures may actually understate underlying price pressures. If the median projections prove accurate, they would translate into a 6% annualized pace of headline inflation for the first five months of the year and a 3.6% annualized pace for core inflation. This trajectory will be scrutinized closely as it arrives just one week before the conclusion of the first Federal Open Market Committee meeting chaired by the new Fed leadership, at which a revised Summary of Economic Projections is expected to be released.
The May Producer Price Index is due the day after the CPI report. While markets typically react less intensely to PPI than to CPI, the measure remains important for assessing broader inflation dynamics. After surging 1.4% in April, a more modest but still robust rise of 0.5% is expected. That would lift the year-over-year rate to 6.2% from 6.0%, continuing to suggest underlying inflationary pressures in the producer sector.
The April trade balance will also be released during the week. The goods trade deficit has already shown some narrowing, though the US continues to run a chronic deficit in goods trade. This structural imbalance is partially offset by a persistent and substantial surplus in services trade. While China, with approximately 17% of the world’s population, accounts for about 14.5% of global exports, the United States, with just over 4% of the world’s population, accounts for 13% of global service exports. Throughout industrialized and many emerging economies, the service sector provides more employment than the manufacturing sector, underscoring the importance of this trade dynamic.
The May federal budget deficit will also be reported. Through April, the cumulative deficit stands approximately 9% smaller than the year-ago period, though the shortfall for the first four months of the calendar year is about 4% larger than the prior year comparison. These mixed signals on fiscal dynamics add uncertainty to the medium-term outlook for US growth and inflation.
Strong May jobs growth has already lifted the Dollar Index to two-month highs, and the technical setup now points toward the year high near 100.65. The momentum is decidedly in the greenback’s favor, though profit-taking and any dovish Fed communications could easily reverse these gains.
Eurozone
The euro has broken decisively lower against the dollar following the strong US employment data, falling below key support levels and threatening to test lower technical objectives. For most of the period since around April 20, the euro had been confined to a relatively narrow $1.16-$1.18 trading range, but this consolidation has now given way to a sharp breakdown. The single currency slumped below last month’s low near $1.1575 and traded through $1.1520, setting up a test of the $1.1500 area as the next potential support level. A move back to the year’s low set in mid-March, just above $1.1400, cannot be ruled out if selling pressure intensifies. Reestablishing a foothold above $1.1600 will be needed to begin repairing the significant technical damage that has accumulated in recent sessions.
The euro’s correlation dynamics reveal the degree to which the single currency is being driven by yield differentials and monetary policy expectations. The euro’s inverse 30-day correlation with changes in the two-year US yield stands near -0.82, representing the most extreme reading in more than 20 years. This extraordinarily high inverse correlation underscores how sensitive euro valuations have become to US monetary policy expectations. Interestingly, the correlation of changes in the euro and Germany’s two-year yield is also inverse, at around -0.65, representing near the most extreme level in six years. This suggests that even domestic German rate expectations are being overwhelmed by the external US rate dynamic. The correlation between changes in the euro and the two-year interest rate differential between the US and eurozone stands at approximately 0.10 over the past 30 sessions, a relatively muted relationship that underscores the dominance of the US yield component in driving euro valuations.
The European Central Bank will meet on Thursday, June 11, and the market is highly confident that the institution will deliver another rate hike. Even though revisions at the end of last week showed the regional economy contracted in the first quarter, market pricing reflects certainty that the ECB will raise rates and signal that it will remain vigilant—that is, prepared to raise rates again if necessary. The deposit rate will stand at 2.25% at the end of next week following the expected hike. The swaps market has another hike fully discounted in the fourth quarter, suggesting the market expects a more extended tightening cycle from the ECB than from other major central banks.
German economic data ahead of the ECB meeting will provide context for the central bank’s decision. Germany reports April factory orders, industrial output, and trade figures. German factory orders jumped 5% in March after a 1.4% increase in February, suggesting some resilience in manufacturing demand despite broader economic concerns. However, industrial output has disappointed, falling 0.7% in March after a decline of 0.5% in February, indicating underlying weakness in the production side of the economy. Germany’s trade surplus, however, is holding up better than might be expected given concerns about China’s economic slowdown. Germany recorded an average monthly trade surplus in the first quarter of 2026 of 18 billion euros, unchanged from the first quarter of 2025, suggesting that export competitiveness remains intact despite currency headwinds.
The eurozone’s May CPI came in at 3.2% headline and 2.5% core, providing the ECB with a rationale for continued policy tightening despite the contractionary economic backdrop. The divergence between eurozone inflation and that of other major economies continues to drive the relative weakness in the euro.
The euro was turned back from the 20-day moving average near $1.1645 even before the stronger-than-expected US jobs data accelerated the decline. The technical damage is now substantial, and the path of least resistance appears to be toward lower levels unless there is a significant reversal in US yield dynamics or a dovish surprise from the ECB.
United Kingdom
Sterling has posted a big outside down day ahead of the weekend, settling below $1.3400 for the first time in two and a half weeks and reaching as low as $1.3330. The next technical target is around $1.3300, which provided support last month. The year’s low was recorded at the end of March near $1.3160, and given the technical damage that has accumulated, a retest of that level cannot be ruled out if selling pressure intensifies.
The correlation structure for sterling reveals significant co-movement with the euro and inverse relationships with US yields. Sterling’s correlation with the euro over the past 30 sessions is near 0.87, a level that has rarely been higher in the past decade. The 60-session rolling correlation stands at 0.90, matching the late 2023 correlation and representing the highest level in at least two decades. This extremely tight co-movement reflects the fact that both currencies are being driven by similar external factors, particularly US monetary policy expectations and yield dynamics. Changes in sterling are inversely correlated with changes in US two-year yields at around -0.75, representing the most extreme reading in nearly 20 years, which is intuitively consistent with the yield differential dynamic. Less intuitively clear, the correlation of changes in sterling and UK two-year yields is also inverse, at near -0.55, a level that rarely is more extreme, suggesting that domestic rate expectations are being overwhelmed by external factors.
The UK’s April GDP will be released at the end of the week, providing important context for Bank of England policy expectations. Growth in the first quarter was firm at 0.6%, matching the best quarterly performance since the first quarter of 2024. However, the economy appears to be on the verge of slowing, and the median forecast in Bloomberg’s survey is for near stagnation in the second and third quarters of 2026. This disappointing growth outlook has prompted a significant shift in market expectations for BOE policy.
The swaps market has tempered its previous hawkish outlook for the central bank considerably. The first rate hike is not fully discounted until the middle of the fourth quarter, and there is only about a 20% chance of a second hike being delivered. This represents a dramatic reversal from late April, when three hikes were fully discounted for the year. The deterioration in growth expectations and the persistence of disinflationary pressures have fundamentally altered the calculus for BOE policy, pushing rate expectations well into the future.
Sterling’s weakness reflects both the external headwind from US yields and the domestic disappointment regarding growth and policy prospects. The technical breakdown in cable suggests that further losses toward $1.3300 and potentially toward the year’s low near $1.3160 are likely unless there is a significant reversal in the yield dynamic or a surprise on the upside for UK growth data.
China
The Chinese yuan is entering a consolidative and corrective phase after trending higher since the end of March, having spent most of March in a consolidation pattern. The greenback posted an outside up day against the offshore yuan and settled above the 20-day moving average near CNH6.7875 for the first time since the end of April. The dollar’s high from the second half of May was around CNH6.82, and this level may represent a reasonable initial target as the yuan consolidates its recent gains.
Assuming rational actor behavior, one must conclude that Beijing is allowing the yuan to appreciate against the dollar and its trade-weighted basket because it is understood to be in China’s interest. Several candidate explanations exist for this policy stance. First, appreciation may help deflect some of the animosity directed at China regarding its historically large trade surplus. Second, a stronger yuan makes the acquisition of foreign financial and real assets cheaper for Chinese entities. Third, yuan appreciation may encourage domestic capital to remain at home as Beijing continues to monitor and check outbound capital flows carefully. The policy stance reflects a deliberate choice to permit currency strength even as it runs counter to some of the external pressure for depreciation.
The correlation dynamics between the dollar and the offshore yuan have moderated from their late April extremes. The rolling 30-day correlation of changes in the Dollar Index and the dollar against the offshore yuan reached at least a 10-year peak in late April near 0.85 and has eased to about 0.68 currently. While this represents a moderation, it remains at the upper end of the long-term range. Recall that in late January this correlation fell below 0.05 and was even briefly inversely correlated at various points last year, highlighting the volatility in this relationship.
China reports two time series for which markets and the media are particularly sensitive. The first is trade data. The May trade figures are due during the week. Through April, China’s trade surplus is about 4% smaller than in the first four months of 2025, suggesting some moderation in the external surplus. While the yuan is widely acknowledged to be undervalued, the 20% magnitude suggested by some economists and banks does not appear extreme when compared to the overvaluation of the greenback against several other major currencies. The OECD’s measure of purchasing power parity estimates the yen is more than 60% undervalued, the euro 30% undervalued, and the Canadian dollar 20% undervalued, providing important context for assessing yuan valuations.
The claim that a rising yuan will allow other Asian currencies to appreciate has not been borne out in price action in recent months, as these currencies have moved independently based on their own domestic and external factors. Moreover, some economists had claimed that China was exporting deflation to the rest of the world. What has actually occurred is the opposite. China’s inflation gap with other countries has narrowed, not because other countries converged with China’s lower inflation, but because China’s consumer and producer prices have risen. This represents a meaningful shift in the inflation dynamics and suggests that China is no longer a deflationary force in global markets.
The greenback’s consolidation against the offshore yuan may be setting up a potential move toward the CNH6.82 level, which would represent a meaningful resistance test for the yuan’s appreciation trend.
Japan
The dollar has reached a new high since the late April Bank of Japan intervention, climbing to near JPY160.35 following the strong US employment data. The previous high set on April 30 was JPY160.70, and the dollar reached a high in March around JPY160.45. The momentum indicators are now higher than when the BOJ intervened at the end of April, and the yield backdrop has shifted significantly in favor of the greenback. The US two- and 10-year yields are approximately 25 basis points higher than at the end of April, providing substantial support for dollar-yen strength.
The correlation between dollar-yen and the Dollar Index stands near 0.85, representing the best level since early in the fourth quarter of 2025. This tight co-movement reflects the degree to which the yen pair is being driven by broad dollar dynamics rather than idiosyncratic Japan factors. The correlation between the exchange rate and changes in the US 10-year yield has drifted lower from the year’s high in late April near 0.65 to a little above 0.50, suggesting some moderation in the direct yield linkage. The correlation between the exchange rate and Japan’s 10-year yield is less than 0.05 and has not been above 0.40 since mid-2024, indicating that domestic Japanese yield dynamics are having minimal impact on the yen exchange rate. The correlation of the exchange rate and the 10-year interest rate differential is a little below 0.50, having been briefly inversely correlated in December of last year.
The threat of intervention after a record operation in late April through early May has injected a new element of uncertainty into the yen trading dynamics. Market participants remain vigilant for any sign of official intervention to support the yen, though the recent strength in the dollar and the shift in yield dynamics have reduced the immediate pressure on Japanese officials to intervene.
Ahead of the Bank of Japan meeting conclusion on June 16, Japan will report a revision of first-quarter GDP, April’s current account, and May producer prices. The data is unlikely to materially impact expectations that the central bank will hike rates. The initial estimate of first-quarter GDP came in at 2.1% annualized, stronger than the 0.8% recorded in the fourth quarter of 2025, suggesting that growth momentum has picked up. While Japan runs a current account surplus and possesses a currency that is widely viewed as undervalued, it has been running a trade deficit. This situation is changing, with the trade deficit narrowing as export demand stabilizes and import growth moderates.
The swaps market has almost an 80% chance of a rate hike later this month, and approximately a 70% chance of another hike before the end of the year. These probabilities have shifted dramatically from late April, when the BOJ intervention was in full effect. The chances of a BOJ rate hike this month were seen as a 65% chance in the swaps market at the end of April and are now approximately 95% discounted, reflecting the market’s confidence in a tightening move. This represents a remarkable shift in expectations driven by stronger growth data, persistent inflation, and the changing yield dynamics.
Paradoxically, the US Treasury Secretary has encouraged a BOJ hike, yet Japan’s core inflation has been below target for the three months through April, and its headline rate is less than half of the US rate. This contrasts sharply with the administration’s argument for lower US policy rates, highlighting the inconsistency in policy messaging regarding appropriate monetary policy stances across major economies.
The dollar’s momentum has clearly shifted in favor of higher levels, and the technical setup suggests potential for a test of the April 30 high near JPY160.70 if the current momentum continues. The yield differential and broad dollar strength provide substantial support for dollar-yen appreciation.
Canada
The Canadian dollar initially reacted positively to news that a whopping 154,000 full-time jobs were created in May, the most since February 2022. This strong employment growth provided support for the loonie and initially pushed the US dollar lower to almost CAD1.3865. However, the greenback subsequently rebounded to a new session high near CAD1.3950, and the year’s high was recorded at the end of March slightly above CAD1.3965. A move above CAD1.40 would signal potential for a move toward CAD1.4100-1.4140, representing a significant technical breakout.
The Canadian dollar is sensitive to the greenback’s overall direction, with the rolling 30-day correlation of changes in the USD-CAD exchange rate and the Dollar Index standing at around 0.67. This correlation peaked shortly after the Middle East war began near 0.85, which was the highest level since mid-2024, but has since moderated. The Canadian dollar is also sensitive to the general risk environment, using the S&P 500 as a proxy. The rolling 30-day correlation of changes in the USD-CAD exchange rate and the S&P 500 is near -0.45, indicating that risk-off sentiment tends to support the greenback. The exchange rate is more sensitive to changes in the US two-year yield (approximately 0.45, 30-day rolling correlation) than to changes in Canada’s two-year yield (approximately 0.35) or to changes in the two-year interest rate differential (approximately -0.04), underscoring the external nature of the drivers for the loonie.
The Bank of Canada will meet on June 10, and there is practically no chance that the central bank will change its 2.25% policy rate. The Canadian economy has unexpectedly contracted in the first quarter of 2026, marking the second consecutive quarterly contraction. This disappointing growth backdrop, combined with moderating inflation, has led to a dramatic reassessment of BOC policy expectations. Before the Middle East war began, the swaps market was discounting about a 40% chance of another rate cut. This swung dramatically, and by March 20, the market had a little more than three rate hikes fully discounted for the year. The pendulum has swung sharply again, and even before the recent data showing back-to-back quarterly contractions, the swaps market had less than two hikes priced into the swaps curve. Now, there is a hike fully discounted late in the year and about a 37% chance of a second hike, suggesting the market expects the BOC to maintain a steady policy stance for the foreseeable future.
Canada’s inflation data provides context for the BOC’s cautious stance. Canada’s April headline CPI was 2.8% and its core rate was at 1.5%, with the underlying core measure averaging about 2.05%. These figures are well-contained relative to the BOC’s 2% target, and the trend is toward moderation rather than acceleration. The unemployment rate fell back to 6.6% from 6.9% in May, while the participation rate remained steady at 65% and wage growth slowed markedly to 3.2% from 4.8%, suggesting that labor market pressures are easing.
From a purchasing power parity perspective, the OECD’s model suggests the Canadian dollar is trading about 20% below fair value. Yet Canada’s trade balance has deteriorated significantly. In the first quarter of 2025, the goods balance was in surplus by an average of about CAD337 million per month. In the first quarter of 2026, the average shortfall was nearly CAD2.2 billion per month, representing a dramatic swing in the external position. This deterioration in the trade balance suggests that the weakness in the loonie may be justified on fundamental grounds despite the PPP valuation argument.
The technical picture for USD-CAD suggests potential for a move toward CAD1.40 and beyond if the current momentum continues. The strong employment data provides some support for the loonie, but the persistent growth weakness and the broad dollar strength appear to be the dominant forces driving the exchange rate higher.
Australia
The Australian dollar has broken down sharply after the US jobs data and fell below $0.7040, its lowest level since April 13. It settled below the lower Bollinger Band at approximately $0.7065, suggesting that the aussie could be at the edge of a precipice. Since around mid-April, a head and shoulders topping pattern has been etched out, and it appears to have settled below the neckline with the losses suffered at the end of last week. The measuring objective of this pattern is around $0.6900. From another perspective, the $0.7055 area represents the halfway mark of the aussie’s rally off the year’s low from March 31 at approximately $0.6835, and the next retracement objective is near $0.7000.
Judging from the 30-day rolling correlation of changes, the Australian dollar is most sensitive to changes in the US two-year yield at -0.85, representing the most extreme level in more than two decades. The aussie is also highly sensitive to the greenback’s broad direction, using the Dollar Index as the proxy, with a correlation of approximately -0.82, the most extreme reading in two years. The aussie is less sensitive to changes in the domestic two-year yield, with a correlation of less than 0.35. The correlation with the two-year interest rate differential and the exchange rate is lower than with the US rate alone, at approximately 0.71. Notably, the exchange rate’s correlation with gold has recovered from around 0.35 in late March to around 0.84, the highest level since late 2022, suggesting that gold price dynamics are becoming an increasingly important driver of aussie valuations.
Australia’s economic calendar is light, consisting primarily of private sector consumer and business surveys. The Melbourne Institute’s consumer inflation expectation survey may be the most important indicator. It reached 5.9% in April, its highest level since November 2022, before pulling back in May to 5.6%, which was also last year’s high print. This elevated level of inflation expectations, while moderating from the April peak, remains a concern for the central bank.
The Reserve Bank of Australia will meet on June 16. With three hikes already delivered this year and recent data showing weaker-than-expected employment, preliminary May PMI, and April household spending, there is little doubt that the RBA will remain on hold. The futures market has downgraded the probability of another hike this year to about 70%, down from a level where it was fully discounted as recently as May 26. This represents a significant shift in rate expectations driven by the disappointing economic data and the changing global yield backdrop.
The technical breakdown in the aussie is particularly significant given the correlation dynamics. With the US two-year yield rising sharply and the Dollar Index reaching two-month highs, the headwinds for the aussie appear substantial. The head and shoulders pattern with a measuring objective near $0.6900 suggests that further downside is likely unless there is a significant reversal in US yield dynamics or a surprise on the upside for Australian economic data.
Emerging Markets
The Mexican peso fell by around 1.10% ahead of the weekend, matching its biggest decline in nearly three months. This move turned what was a small gain for the week into a modest loss of approximately 0.70%. The dollar recorded an ostensibly bullish outside up day against the peso, having traded on both sides of Thursday’s range and settled above its high. In fact, the greenback settled at its best level in a month against the peso. The dollar had forged a base in recent sessions in the MXN17.26-MXN17.27 area before being lifted to about MXN17.5360 ahead of the weekend, its best level since May 5, before closing near MXN17.48. The next technical target is the cap from the second half of April in the MXN17.58-MXN17.59 area.
Four recent peso drivers stand out prominently. First, the 30-day correlation between changes in the exchange rate and changes in the US two-year yield is above 0.80 and the highest in 20 years. Notably, these variables were inversely correlated until about mid-March, highlighting the dramatic shift in the relationship. Second, there is still a substantial sensitivity to risk dynamics. Using the S&P 500 as the proxy, the inverse correlation of the dollar-peso exchange rate is almost -0.79, and in April it approached -0.85, a level that has not been seen in a decade. Third, the exchange rate is inversely correlated with gold at approximately -0.79, the most extreme reading since mid-2022, suggesting that the peso tends to strengthen alongside gold prices. Fourth is the dollar’s overall direction, with the correlation of the exchange rate and Dollar Index changes at about 0.63, down from this year’s peak near 0.80 but still at the upper end of this year’s range.
Mexico reports May vehicle production and exports to start the new week, providing important data on export dynamics. In April, Mexico exported almost 87% of the vehicles it produced. By contrast, estimates suggest China exports 15-20% of the vehicles it produces, with about a fifth of those exports being foreign brands. This difference highlights Mexico’s role as a critical manufacturing hub for the North American automotive market.
The highlight of the week for Mexico is Tuesday’s May CPI and Thursday’s April industrial output. Both the headline and core CPI measures likely remained about the upper end of the 2%-4% target range, while the economy struggles to find traction. Industrial output contracted by 1.2% year-over-year in the first quarter, and the monthly series fell by a cumulative 1.36% in the first quarter, suggesting persistent weakness in the production side of the economy.
After delivering the second rate cut of the year last month, Banxico has signaled it is moving to the sidelines, and the swaps market favors a rate hike of 80% probability by the end of the year. This represents a significant shift in expectations from earlier in the cycle when rate cuts were expected. The combination of persistent inflation pressures and the changing external yield environment has prompted a reassessment of Banxico’s policy trajectory.
Global Markets
The war in the Middle East continues to disrupt flows from the region and helps shape risk appetites across global markets. After falling by almost 14% in the last two weeks of May, July WTI crude oil rose about 4.5% last week as there seemed to be little progress toward a resolution of the underlying conflict. The odds regarding the Strait of Hormuz, as reflected on prediction markets like Polymarket, seem more cautionary and stable than the vagaries of the capital markets and oil futures. On that event site, there is about an 18% chance that the Strait is opened by the end of June and about 36% chance it is opened by the end of July. These probabilities suggest that market participants are pricing in an extended period of disruption risk, which continues to support energy prices at elevated levels.
The correlation between the Dollar Index and oil prices has shifted meaningfully in recent months, with the strong dollar and rising real yields providing headwinds for commodities priced in dollars. However, the geopolitical risk premium continues to support oil prices despite the stronger currency backdrop. Brent crude has similarly benefited from the supply disruption concerns, trading in tandem with WTI as the market prices in the risk of extended Middle East tensions.
Gold has recovered from earlier weakness and has shown renewed strength as real yields have moderated from their April peaks. The inverse relationship between real yields and gold prices continues to hold, with the yellow metal finding support as investors seek safe-haven assets amid geopolitical uncertainty and economic slowdown concerns. Silver has similarly benefited from the risk-off sentiment, though with greater volatility given its dual nature as both a precious metal and an industrial commodity.
Equity markets globally have shown resilience despite the challenging macro backdrop, though with significant regional divergence. Asian equity markets have reflected the mixed economic data and shifting policy expectations across the region. European equities have struggled with the growth concerns and the divergence between ECB tightening and economic weakness. US equity futures have shown strength on the back of the robust jobs data, though concerns about inflation and Fed policy remain. The correlation between risk assets and US yields has become increasingly important, with the 30-day rolling correlation between the Dollar Index and the S&P 500 providing a useful barometer of risk sentiment.
Sovereign bond markets continue to reprice as central banks signal divergent policy trajectories. US Treasuries have backed up significantly on the back of stronger inflation data and robust employment growth, with the two-year yield reaching its highest levels in several months. German Bunds have struggled to keep pace with the US move, as the ECB’s commitment to continued tightening is being tested by weaker economic data. Gilts have similarly underperformed as BOE rate expectations have been pushed further into the future. Japanese Government Bonds have sold off as the BOJ rate hike expectations have risen dramatically, with the 10-year JGB yield reaching its highest levels in months.
The technical picture across major asset classes suggests that the current trend of dollar strength, rising US yields, and risk-off sentiment remains intact. Unless there is a significant reversal in the geopolitical situation or a dovish surprise from major central banks, the current configuration of forces appears likely to persist in the near term. Traders should remain vigilant for any shifts in these dynamics, particularly around the major central bank meetings scheduled for this week and next.
