US FX WRAP: Dollar gains on higher yields and AI riskoff

Dollar strength followed the rally in US yields which saw new YTD highs in the short and belly of the curve. Oil prices' sharp rise is showing no sign of a break, with yet again, no signs of imminent deescalation. The Houthis targeted two Saudi oil tankers in the Red Sea. Regarding Trump, N12 reported that US President Trump said today he is "considering a massive attack greater than anything before, I'm close to making a decision", noting "Israel will join in within 2 minutes if I ask". Also, likely behind USD strength was the risk-off tone in response to Alphabet earnings keeping concerns elevated over capex raises, negative free cash flow, and short term margin pressure. Separately, the Fed's greater focus on the inflation mandate will have only gotten bigger following the latest initial claims data which shows even more stability than previously thought, dropping to their lowest level in almost 60 years, 187k (exp. 212k). DXY sits near highs of 101.54.EUR tracked the stronger Buck with the ECB meeting not providing any surprises as President Lagarde likely intended. The statement was largely a reiteration from the ECB, though one that sparked a modest dovish reaction after the statement stuck to the data-dependent, meeting-by-meeting and no-commitment language, despite recent energy upside. As such, a modest unwinding of hawkish bets took place. The presser also did not spark much of a reaction, Lagarde noted the decision was unanimous, and that some members questioned whether ECB should have hiked today. Later on, Bloomberg reports, citing sources, noted that ECB officials are said to be ready to raise rates in September. Again, EUR/USD saw little move; now sits around 1.1377.Antipodes were the worst performer on the risk-off day, further weighed by higher oil prices and weaker gold prices. The downward move came in AUD despite initial strength in response to a better-than-expected jobs report. Employment grew 76.3k in June (exp. 15k), with the u/e rate holding steady at 4.4%. The surprise beat may have contributed to the underperformance in NZD via rotation as seen in AUD/NZD rising to 1.2070 from earlier lows of 1.1935.ZAR was amongst the worst EM's against USD following an unexpected SARB decision to keep rates unchanged, despite expectations for a 25bps hike. The vote was a 4-2 split, with the minority favouring a 25bps hike.