The U.S. Dollar Index is on track to close the week +0.80%, its biggest weekly gain since mid-January. The dollar’s advance can be directly linked to central bank activity this week, with the Fed decisively firm on no rate cuts in Wednesday’s rate policy decision vs. a surprise rate cut by Switzerland’s SNB and a dovish shift by the Bank of England.
Central banks are poising for a series of rate cuts with the U.S. Fed expected to join the rate cutting later this year. But in the meantime, as long as U.S. rates remain relatively high there is an added incentive to hold U.S. dollars.
Weekly gains for the dollar vs. the G10: +1.64% vs. CHF, +1.62% vs. SEK, +1.45% vs. JPY, +1.23% vs. NZD, +0.92% vs. GBP, +0.58% vs. EUR, +0.55% vs. AUD and +0.17% vs. CAD.
Today’s dollar advance is also partially explained by reduced global risk sentiment following China’s PBOC hinting at lowering the reserve requirement ratio for banks to boost liquidity, signaling that authorities are exploring new ways to increase economic stimulus. USD/CNH is +0.69% today to 7.2701, the yuan’s weakest point since mid-November.
Declining risk sentiment has translated into lower U.S. Treasury yields which have declined in all tenors, with the long-term tenors down the most. The 10-year benchmark yield is -0.065% at 4.203%.
