The US dollar is loosing traction after last week’s FOMC minutes statement, which indicated the US economy is too weak to raise the Fed funds rate anytime soon. Fed chairwomen Janet Yellen said it would be “considerable time” before interest rates would be pushed higher. Dollar bulls have currently exited, as today’s existing home sales and flash manufacturing PMI both beat analyst forecasts.
Peter Kinsella, senior FX strategist at Commerzbank AG, said “it’s a combination of the still very dovish Fed and yet still pretty decent underlying economic data.” The economic data has remained reasonably positive, but the underlying dovish tone of the Fed is causing the dollar to trade sideways.
The US 10-year treasury note has pulled back from recent highs, and yields have increase from lows near 2.44 percent this year. However, the dollar-treasury correlation has not worked out of late. “Despite the fact that U.S. yields are pushing higher, the dollar isn’t really gaining much traction,” said Michael Sneyd, an FX strategist at BNP Paribas in London.