The dollar rally seems to be slowing in the past couple of days as the huge move higher in Treasury yields has just started to consolidate. This means that there could be a short period of respite at least, for the selling pressure on major forex currencies and gold. The Trade Weighted Dollar Index closed above 100 for the first time since December last year yesterday but the market is beginning to consolidate. This comes as the 2 year Treasury yield is settling down around 1.0% and the 10 year yield is settling around 2.2%. This settling is allowing support to form on the likes of gold (above $1211) and the euro (above the key support around $1.0710). It is possible that the profit-takers may look to move in if this consolidation continue. However, until there is more meat to the bones of what Trump’s proposals are, it is likely that the market will back this reflation trade that is supportive for the dollar. This comes as FOMC members continue to roll out with more hawkish language in the wake of the prospect of fiscal stimulus from President-elect Trump. Eric Rosengren suggests this would generate a tighter monetary policy with Daniel Tarullo said yesterday that a hike was more likely now.
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