USD: Finding a better traction - BBH

The dollar is finding better traction today, building on the upside reversal seen before the weekend as the news stream has been light and it seems primarily like an issue of positioning rather than a change in sentiment or the consensus narrative, according to analysts at BBH.  

Key Quotes

“The focus has shifted from monetary policy and idea that the ECB and BOJ are exiting their extraordinary monetary policy to the return of the twin deficit problem in the US.”

“One of the twins, the budget deficit occupies center stage in the US today.  It is not so much the deficit as the paying for it.  That is, the US Treasury will raise a boat load of money today.  It will issue $96 bln in three- and six-month bills, and $55 bln in a four-week cash management bill.  It will also sell $28 bln of two-year notes.  In the next two days it will raise another $80 bln in other note sales.”

“The anticipation of this supply has pushed short-term rates higher, but it has yet to appear as a material force in the cross-currency basis swaps.  The US debt market appears to have been building in a concession ahead of the new supply.  The yield of the entire coupon curve is about three basis points higher.  Global yields are mostly firmer.  Sweden is a notable exception.”