After a major sell-off last week, the bond market and risk assets are showing signs of stabilization. The dollar's corrective rally should take a breather now that 10-year US Treasury yields have returned to 1.40 percent and Asian equities have stabilized overnight. The price action overnight reflects this, with G10 and emerging market FX generally higher versus the US dollar, with higher beta currencies leading the gains. The emphasis will be on a series of Federal Reserve speakers this week, and whether they express any concern about the UST downturn, as a disorderly UST sell-off remains the key risk for markets.
Although the decline in cyclical FX was substantial late last week, the overall negative effect on cyclical FX was not overly pronounced in light of the sharp rise in UST yields in February. This is due in part to the reasons for the sell-off, which were more closely related to improving economic conditions than to expectations of monetary policy normalization.
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