UniCredit: USD Still Driven Mainly by Risk, but Yields Are Becoming More Important - FJElite

Since the war in Iran began on 28 February, the USD has been highly sensitive to swings in risk aversion, with the strong correlation between DXY and the VIX showing that broader market sentiment has been the dominant driver. Interest rate differentials have mattered less over that period.

That said, the recent rise in long-end Treasury yields is starting to play a bigger role in supporting the dollar. With the 10-year yield rising to a 16-month high near 4.70% and the 30-year moving back toward 5.20%, close to highs last seen in 2007, US yields are increasingly becoming a second major pillar for the greenback alongside developments in the Middle East.