Dollar builds on hawkish Fed tone from yesterday

Dollar smile, anyone?

The hawkish Fed tone from yesterday is helping to pin down risk assets and the dollar is extending gains against the commodity currencies for the most part today. AUD/USD is down 0.9% to 0.7157 as price looks towards 0.7100 next:

Meanwhile, we’re also seeing EUR/USD fall to a low of 1.1285 on the day and GBP/USD falling further to 1.3505 after failing to breach resistance from the 100-day moving average and 61.8 retracement level:

Despite the dollar’s advance, we are actually seeing equities pare some of its earlier losses. S&P 500 futures and Dow futures are now flat, but it is a bit early to call for dip buyers to prevail.

I still reckon we could see risk trades keep more pressured, especially if bond yields threaten to push higher. For now, 10-year Treasury yields are up 2.2 bps to 1.725% but facing resistance at 1.75% to 1.79% as outlined here.

Either way, it is tough to bet against the dollar so long as the Fed continues to play ball and risk trades are looking vulnerable. If anything else, the move so far this week could have more legs if the US non-farm payrolls release tomorrow vindicates the Fed in going with a quicker balance sheet runoff.

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