“….The ‘risk-on/risk-off’ regime is based on the premise that good economic data in the US are bad for the dollar because the Fed is on hold for ever and US yields are so low that yield-hungry investors are squeezed out of US markets and into foreign currencies. If the traditional relationship between US yields and economic data is restored, the ‘risk-on/risk-off’ regime will come to an end (not before time), and stronger US data will be dollar supportive. This is going to happen at some point this year, and the overnight move is a taste of how it plays out. Only a taste however, as the FOMC is still too split and a change in Fed direction is still a long way away.
This has the potential to be a year in which markets behave very differently than they have….”
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