Yield Shield Peeled
Initially the FX market shrugged off higher yields, early on Tuesday AUD/USD hit 80-cents for the first time in three years. After a strong US durable goods orders report, the Canadian dollar also hit a three year high. But as the jump in yields grew increasingly disorderly, both reversed in a big way. Cable was also sucked back to 1.40.
Importantly, this was a global jump in yields and while the outlook is strong for this year in the US, global central bankers will not appreciate the speed of this move. The Fed will be facing pressure internally and externally to clamp down on rates.
The first step will be verbal intervention. The Fed's Williams speaks Monday, Brainard on Tuesday and Powell next Thursday so there will be plenty of opportunity.Yet, if Friday's PCE report shows unwelcome inflation, they may be forced into action sooner. The consensus estimates on both core and headline are +1.4%.
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