Friday's job report showed a slowdown in job growth and a moderation in wage inflation. In response, the US 10-year real rate declined (top), with the greenback following (middle).
Since December there has been a disconnect between the two series. The real rate has moved higher whilst FXCM's USDOLLAR basket moved sideways (black arrows). This altered their correlation coefficient (bottom). This had been robust in 2022 (red sideways rectangle), but the disconnect pushed the coefficient towards zero and just below (green vertical rectangle).
Friday's job report may have reconnected the two, with the correlation coefficient pushing back into positive territory. This is noteworthy. The market expects a Fed pivot this year. This will be reflected in the real rate, until proven otherwise, and if the correlation has reconnected, the dollar will be affected and will probably decline.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.