The street’s short dollar positions came under further pressure over the past week on remarks from US Federal Reserve Chair Powell and Friday’s solid jobs report.

Ultimately, the US dollar fate is all about repricing the Fed hikes up to 2023, as when FX traders start bringing forward rate hikes to the next two years, this matters for the US dollar.

More significant pushback from other central banks (RBA, RBNZ, ECB) to their respective bond markets over the last week than the US Fed provided has given reason for the dollar move to broaden out.

The dollar is in demand as the USA is the most services-heavy economy globally, and once the reopening narrative goes in full swing, that will provide the icing on the cake. And the cherries on top will unquestionably be the US$1.9 trillion of stimulus passed Sunday massive US infrastructure package.

US yields still have room to move

Japanese investors have net sold 3.6tn Yen of foreign bonds over two weeks period, the largest over the past 20 years, suggesting US yields have more room to reprice, and the unwind of currency hedges could also support higher USDJPY.

Gold continues to fall

Gold prices have fallen consistently since 25 February and have been mainly on the defensive all year, shedding US$270/oz at one point since hitting year-to-date highs of USD1,959/oz on 6 January.

The jump in the USD and 10-year yields on Friday, following the better-than-expected February monthly payroll number, initially looked like gold was about to fall through the trap door.

But later in the day, gold managed to pare losses and stabilize in line with softening US yields and ended the week bobbing around USD1,700/oz.

Some of this may be due to end of week profit taking and short covering. The market may have fallen too steeply, too quickly. Gold has been undercut by cheerful economic optimism over a robust economic recovery and faster than anticipated rises in bond yields.

Market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi