The rise in US yields is not an inflation story

It’s another day, but the same story is unfolding: oil prices continue to push higher, yields rise as investors factor in expectations of higher inflation, hence higher central bank rates, and the latter is weighing on equity valuations in the absence of major news and data.

In this context, the Reserve Bank of Australia (RBA) just announced a 25bp increase in its policy rate today and said that it will take further action if needed. The decision was widely expected, the statement was hawkish, and the AUDUSD tested the 200-DMA, but the US dollar’s broad-based strength remains the key driver across major FX peers, as the rapid rise in US yields and the notable hawkish shift in Fed expectations cast a shadow over other central banks’ policy outlooks. The dollar index is now in overbought territory, suggesting that the greenback may have been bought too rapidly in too short a period of time, and that it could soon be time for a downside correction.

What would trigger that when yields are rising so rapidly?