USD: The US dollar has recently been driven mainly by growth concerns rather than inflation fears.
In fact, despite hotter US inflation data last week, Treasury yields dropped significantly and rate hike probabilities saw a slightly dovish repricing
Given the overstretched long positioning in the greenback, we’ve started to see an unwind which could extend further if growth concerns strengthen. That’s why tomorrow’s US Flash PMIs could be an important catalyst. Strong data could quell those fears and give the US dollar a boost.
A soft report, on the other hand, will likely increase growth concerns and put further pressure on long-term Treasury yields and the greenback. JPY: On the JPY side, the currency has started to act like a safe haven as market’s focus shifted to growth. The changes in risk sentiment have been responsible for the daily ebb and flow as BoJ interest rate expectations remained largely unchanged.