Dollar in box seat for now

The market has been very unenthusiastic about the dollar in recent months, with traders anticipating that the currency’s decline in 2017 and in the opening weeks of 2018 would be sustained throughout this year, writes Oliver Mangan.

However, the dollar turned very stable over the spring. More recently, rising US yields have unnerved dollar traders, who have started to unwind some of their short positions. This has seen the dollar rising between 2.5% and 4% against a broad range of currencies over the past two weeks.

The extreme market positioning suggests there is a further unwinding of dollar short positions to come, especially in the context of 10-year US Treasury yields rising to 3%, a firming of market expectations in regard to Fed rate hikes, and signs of a loss of momentum in economies outside the US.