Dollar remains resilient – BBH

FX Strategists at BBH noted that the US Dollar is showing resilience despite of the recent slide in the US Treasury bond yields.

Key Quotes:

“The US dollar is edging higher against most of the major currencies in a session devoid of much news.  The Canadian dollar and the Japanese yen are the exceptions. The euro is the weakest of the majors; off about 0.3% near $1.0650.  After a strong advance yesterday, sterling just missed recording an outside up day, and is consolidating yesterday's gains in a narrow range.”

“The US 10-year yield is holding below the 2.40% that was breached yesterday.  Recall the yield peaked the day after the December 14 FOMC decision to hike rates near 2.64%.  It fell to 2.30% on January 17 and recovered over the next week to 2.54%.  It has been drifting lower.  The March 10-year note futures peak on January 17 at 125-13.  Yesterday, it reached 125-10.  The 125-16 area is the 38.2% retracement of the sell-off since the US election.”

“Although the dollar-yen rate is sensitive to US rates and the differential with Japan, the greenback has been resilient in the face of the latest decline in the Treasury yields.  The dollar remains within the roughly JPY111.65-JPY112.80 range established on Monday.  Still until the dollar resurfaces above JPY112.80, the technical tone is vulnerable.”

“Abe and Trump meet this week.  Trump has already complained about the weakness of the yen and has withdrawn from the TPP.  Although Abe was not initially a strong advocate of TPP, he came around to be key supporter, at least in part due to its help in overcoming domestic rivals (like the Agricultural Co-ops).  One way to square the circle is to turn the multilateral agreement into a bilateral agreement.  It would be consistent with Trump's desire for bilateral over multilateral agreement.  It would also blunt some of concerns about the Administration's protectionism.”