The US dollar initially fell but later managed a partial recovery, gaining around 60 pips against the euro and half that amount against the Australian dollar. However, it is once again under pressure as US Treasury yields rise.
Gold prices have increased by over $100 today, nearly reaching a new high after previously dropping $25. There is a noticeable movement away from US dollars and USD assets, indicating a lack of confidence.
Shifting Sentiment
This movement reflects the current fragility in sentiment around the US dollar, which has been heavily influenced by shifting expectations regarding interest rates and narrower demand for dollar-based assets. The partial recovery in early trading was largely a result of short covering rather than fresh bullish momentum. That it struggled to maintain even half its gains against commodity-linked currencies like the Australian dollar suggests persistent unease.
US Treasury yields moving upwards typically offer some support to the dollar, but in this case, they appear to be acting more as a stress signal than a magnet for flows. Confidence in fixed-income instruments denominated in USD looks to be easing, a fact highlighted by the divergence between yields and the dollar’s direction. Rising yields under normal conditions would draw capital into the currency, but with bond prices falling and no strong demand showing up in the dollar itself, we have to assume the market is questioning the value of USD exposure at this time.
As for gold, the rally today—wiping out yesterday’s slump and pushing toward a fresh all-time high—signals a decisive shift. That move, driven not by inflation expectations but by demand for safety, is particularly telling given the accompanying weakness in the dollar. Gold tends to react when confidence in fiat currencies dips, and for it to swing $100 within a session sends a clear message. There’s no ambivalence here: traders are increasingly pricing in pressure on financial stability, or at the very least, moving to insulate against unpredictable turns.
Looking closely, it’s obvious we are not in a typical risk-off environment yet—stocks are not in free fall—but flows into traditional safe havens like gold suggest that hedging is being prioritised over return-seeking. That’s especially relevant for anyone relying on directional trades, given how quickly trends have been snapping back.
Market Adaptation
What we are facing now is a time where implied volatility might remain muted, even as realised volatility starts creeping higher. That tends to favour options strategies that look for low cost-of-entry hedges with asymmetric profiles. If we think about positioning over the next two to three weeks, the suggestion would be to avoid net-flat deltas and lean slightly toward non-USD assets that are showing consistent bid in the spot and forward curves.
Yields not supporting the dollar, combined with metals breaking higher and staying there, reduces the likelihood of a one-way market. We’ve noticed this before—when haven flows are not dollar-centric, the usual inverse correlations can break down. That’s where traders caught in oversimplified directional trades often find themselves pressured.
The response then shouldn’t be to over-engineer setups but rather to keep exposure flexible. Tight conditions in funding and the absence of a steady dollar correlation with yield might present repeated short-term opportunities, especially around data events. However, keeping duration to a minimum would likely serve portfolios best—entries will matter far more than they did just two or three months ago.
Above all, we should accept that traditional anchors have loosened slightly. That changes the game—not in any dramatic way—but enough to require faster adaptation. Enthusiasm for dollar rebounds should be cautious at best, especially when the recovery legs rely on shallow drivers like short covering rather than real demand.
