US Dollar: Bond sell-off supports stronger Dollar – ING

ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner highlight that higher real US yields and a bond market sell-off are reinforcing Dollar strength. They argue the move is driven by inflation concerns, making it supportive for USD. ING sees upside risks for the Dollar, with DXY potentially breaking above 99.50, especially if FOMC minutes hint at further hawkishness.

Higher yields reinforce Dollar support

"Higher real US yields are back to driving dollar strength. Yesterday, we sensed that market patience for any improvement in the Gulf situation was thin, and the latest headlines did not dent the bearish bond momentum."

"It’s worth reiterating that, unlike in 2025, this sell-off is being driven by inflation concerns rather than fiscal fears, making it unambiguously USD positive. When we argued in February that the dollar’s decline was cyclical rather than structural, we constructed a USD safe haven gauge combining the dollar’s correlation with US equities and with 10-year Treasury yields. That measure now points to the strongest safe haven appeal for the dollar since late 2022, and the second-highest reading in our dataset back to 2005."

"Another event to watch today is the release of April’s FOMC minutes, which will shed more light on the reasoning for the three dissenters who preferred a less dovish message. Any hints that went as far as adding rate hikes to the discussion could underpin the recent hawkish repricing and add support for the dollar."

"As a result, upside risks to USD remain dominant unless genuinely constructive news emerges from the Gulf. Reports yesterday that NATO is considering intervention in the Strait of Hormuz to support vessel passage failed to lift risk assets in any meaningful way. A break above 99.50 in DXY remains a realistic outcome even in the absence of renewed military escalation."

"The ongoing bond market sell-off is offering ideal conditions for dollar strengthening. Markets have likely raised the bar for jumping into new de-escalation trades, and we think risks remain on the upside for USD today. In the UK, inflation surprised to the downside, lowering the probability of a BoE hike."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)