Dollar bulls expecting to score on the back of diverging rates between a hawkish Federal Reserve and dovish European Central Bank (ECB) are now in full retreat.
With the release of the dovish Federal Open Market Committee’s March meeting minutes, and Fed Chair Janet Yellen’s recent remarks highlighting “considerable slack” in the economy, many long-dollar positions are being squeezed as the market drastically prices out an early rate hike by the Fed.
Economically, the U.S. is sound and much further ahead of Japan and Europe. According to the International Monetary Fund, the U.K. is the European Union's outlier on the growth front, while China, with its questionable economic data, (this week it was weaker Chinese export data) is everyone's problem. These are the ingredients that have U.S. Treasurys looking like the better bid. U.S. 10's touched a four-week low yesterday (+2.65%), as traders dampened their enthusiasm and bets for U.S. policymakers to move aggressively toward a hike in interest rates.
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