Dollar Rallies Sharply, Yields and Oil Boost Safe-Haven Demand
The US dollar strengthened for a fifth straight day on Friday (May 15) amid a broad sell-off in global bond markets and rising oil prices that heightened inflation concerns. The Bloomberg Dollar Spot Index rose 0.4% and posted a weekly gain of more than 1.2%, its best weekly rally since March 6.
The dollar's gains came amid a sharp rise in US yields. The 2-year Treasury yield rose 6 basis points to 4.077%, its highest in more than a year, while the 10-year yield jumped more than 10 basis points on Friday. On the energy front, Brent rose as high as 3.8% and briefly approached US$110 per barrel before paring gains, heightening concerns that supply from the Middle East would not return to normal quickly.
These movements weighed on G10 currencies across the board. All G10 currencies weakened against the dollar on Friday; the yen was the most resilient, while the New Zealand dollar and Australian dollar were among the weakest. USD/JPY rose for a fifth day and briefly touched 158.79, its highest level this month.
In Europe, GBP/USD fell as much as 0.7% to 1.3315, its lowest level since April 8, with sterling recording a 2.3% drop for the week, its biggest weekly decline since November 2024. Gilts were pressured after heightened UK political dynamics, following news that Manchester Mayor Andy Burnham was given a path to potentially challenge Keir Starmer, rekindling concerns about a looser fiscal path.
EUR/USD fell as much as 0.45% to 1.1617, also its lowest since April 8. On the positioning front, CFTC data compiled by Bloomberg showed speculative FX traders trimmed their bullish dollar positions to around US$5 billion in the week to May 12 from US$7.6 billion the previous week. However, influxes of US asset demand and the dollar's role as a haven still make the greenback attractive in the short term. RBC Capital Markets recommends long dollar positions against the euro and Swiss franc.
Looking ahead, the market will monitor whether the oil rally is sustainable, the direction of US yields following the bond sell-off, BOJ policy risks ahead of the expected June hike (including Societe Generale's recommendation to exit the yen carry trade), and UK political developments affecting gilts and sterling. (arl)*
Source: Newsmaker.id
