The dollar’s value is slightly decreasing against major currencies following events in April. US Treasuries have not regained much ground when evaluated against risk-free SOFR swap rates or German bunds.

There is now a negative correlation between USD/JPY and US Treasury yields, a shift from the typically positive relationship. Evidence is building for currency diversification, indicated by April data from the Japanese Ministry of Finance showing foreign purchases of Japanese equities and long-term debt at record levels since 2005.

Impact Of Us Retail Sales

US April retail sales data, expected to remain flat after March’s increase, could impact the dollar’s movement. Fed Chair Jay Powell’s comments, along with long-term inflation expectations rising to 2.5% from 2.3%, might maintain his neutral stance as the market anticipates only 50 basis points in Fed rate cuts this year.

The US Dollar Index (DXY) is anticipated to stay weak, with short-term support levels at 100.20/25. Without a dramatic increase in retail sales figures, further declines could undo gains of the past three weeks.

What we’re observing here is a gradual weakening of the dollar, a move that’s been slower than dramatic but meaningful nonetheless when measured across key global currencies. This softening follows April’s data releases and a shift in market tone, where some of the usual relationships—like the positive connection between the dollar and US Treasury yields—are now behaving quite differently.

To elaborate, USD/JPY has historically tended to rise with yields, as higher returns on Treasuries generally lure investment flows into US assets. That behaviour has now flipped. Japanese purchases of both domestic equities and long-term bonds surged to levels not seen since 2005, suggesting that even as rates might still favour the United States, appetite is shifting toward local opportunities in Asia. From our perspective, this is a telling change in capital flows, which may not correct in the very near-term.

Trend In Currency Exposure

These inflows into Japan likely reflect a larger trend: international participants spreading currency exposure more actively. Admittedly, this pivot may be due to more than just yields—regulatory moves and renewed optimism in Asia-based growth stories could also be in play—but the bond and equity data from Tokyo speak volumes on their own.

Meanwhile, US retail sales for April are projected to flatline. That follows a stronger print in March. If consumers are indeed pulling back, even modestly, it would suggest that household demand may be slowing—a point not lost on the market as it eyes inflation pathways and employment metrics. Without clear confirmation of resiliency here, that alone may reinforce the cautious tone from Powell last week.

His comments, while not forceful in either direction, come at a time when inflation expectations have started creeping higher again. The five-year outlook drifting from 2.3% to 2.5% tees up an interesting dilemma. While rate cuts are still priced into futures markets—around 50 basis points this year—the Fed chair seems unwilling to rush policy decisions in response to only partial data. Fair judgement, though it does anchor the dollar in a less attractive light for now.

The DXY remains under pressure, still hovering around the 100.20/25 short-term support band. Here, the absence of any meaningful upward momentum in consumer spending could act as a catalyst for another leg lower. Any move beneath that level risks unwinding not just the recent three weeks of gains, but possibly seeding broader USD weakness if technicals worsen.

From our standpoint, this gives traders in rate-sensitive products or volatility assets a clear backdrop. Short-term setups should be approached with more caution, but not inactivity. Focus on levels that hold, rather than chasing retracements based on stale correlations. Pay attention to global bond demand signals, as they now say more about money flow than domestic figures alone. And any deviation in CPI or employment prints could trigger re-pricing across multiple points on the rates curve.

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