USD: Dollar to remain weak as 10-year yield remains key

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MUFG Bank Analysts note that the correlation between the US dollar and US bond yields has strengthened. They see limited momentum for higher yields, so they see the US dollar to remain weak.

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“The yield on US 10-year bonds is still important. The FX / US yield correlation It has become more significant over the last month, which is somewhat surprising given that the 10-year US yield has traded in a tight range. But our analysis through G10 FX with 10-year US yields based on daily percentage changes over a 30-day period shows that each FX pair is more strongly correlated than a month ago. “

“The strongest correlation is still USD / JPY, while GBP and CAD show the weakest correlations. With the UK-specific support factor compelling in our view, we expect the correlation to remain weak. If 10-year US yields are set to rise, the different correlations, if they hold, point to a potential downside in EUR / GBP. The “additional substantial progress” needed for the FOMC to alter the pace of buying has certainly been made after today’s jobs report pointing to downside risks to 10-year yields leaving the dollar vulnerable to the downside. “

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