USD consolidates as Treasurys steady – Scotiabank

The US Dollar (USD) is consolidating. Global market sentiment remains soft, following yesterday’s hefty US equity market losses. Asian and European stocks are down and US equity futures are narrowly mixed, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD consolidates, helped by steadier Treasurys

"Global bonds are softer but US Treasurys have steadied and the minor outperformance is providing a prop for the USD so far today. Yesterday’s 20Y Treasury auction was soft. The auction tailed and details showed bid/cover and 'indirect' bid interest— a reflection of foreign demand for US bond product—down a little versus the last auction. Both were in line with recent trends, however, suggesting that investors remain willing to purchase US bond product but at the right price (yield)."

"With investor focus on US fiscal policy intensifying amid US budget negotiations, the performance of US Treasury bonds will likely continue to influence the USD and risk appetite. Investors may be resigning themselves to the fact that there is unlikely to be any fiscal consolidation for the foreseeable future. A further rise in US yields may weigh on risk appetite but fail to provide the USD with much support. The DXY decoupled from higher US yields and wider (more supportive) spreads following President Trump’s 'Liberation Day' tariff announcement, reflecting investor worries about the impact of trade policy on the economy and the broader appeal of US assets."

"On the day so far, the JPY and TWD are moderate outperformers. Treasury Secretary Bessent and Finance Minister Kato but they did not discuss specific FX levels, however. There is a little more US data to focus on this morning—claims and PMI data—but attention will likely remain on Washington and the status of progress on President Trump’s tax bill. Despite the minor gain in the USD today, scope for broader gains is limited as investors remain concerned about the risk of rising US deficits. The DXY may find it hard to progress much above the 100.00/25 area."