The US dollar has reversed after a modest sell-off in the wake of the Federal Open Market Committee (FOMC) meeting.

The US Fed conference outcome was expected, but the 2023 median dot continued to signal no change in policy proved a sufficient catalyst for some US dollar selling in a market overly obsessed with the dot plot. Still, higher back-end yields overnight (10-year UST yields are above 1.7%) have modestly seen the US dollar firmed up.

The forecast revisions read like an unexciting novel, basically bringing the Fed into line with a market consensus that has materially upgraded its US growth expectations over recent months.

It’s not US yields up US dollar up; it’s more nuanced than that.

Yields up, US dollar up this morning, but it’s worth keeping in mind that it is relative rates driving G10 FX, not US rates.

We keep going round and round with the yields up, USD up thing, but in the end, I think commodities, stock flows and relative rates are more important than US yields in isolation.

As Canadian yields have been going up faster than US yields, a rising yield environment has been USDCAD negative.

Asia currencies

Asia FX never responds well to higher US yields where local traders are buying the dollar dip mode. Despite short-lived positive mood changers like this weeks FOMC meeting, the medium-term thinking around higher US yields is holding local currency bulls at bay.

Malaysian Ringgit

With oil prices tanking and US yields shooting higher, it should prove to be a near-term toxic combination for the ringgit that remains tethered to the US rates market proclivities.

Gold finds some support

After surging higher in the aftermath of the FOMC meeting and Fed Chairman Jerome Powell’s press conference, gold and silver eased – but retained a sense of firmness with limited losses as gold found stronger hands with moves below $1720.

Essentially gold was hit by a recovery in the US dollar. The USD reversed losses in Asian and European trading after Wednesday’s modest selloff in the wake of the FOMC meeting. The key to USD strength – and gold weakness – was the rose in higher back-end yields. The US 10-year Treasury yield pushed back above 1.7% and kept and could keep the pressure on gold if yields continue to break fresh higher ground.

Gold’s decline since the start of the year is consistent with a growth recovery story in which bond markets adjustments imply a rise in risk-free yields and unwind of safe-haven investment holdings.