US Treasury bonds appear to have taken some comfort today from the Supreme Court ruling that the Fed's unique structure can protect its board members from potential presidential removal, Rabobank FX analyst Jane Foley reports.

Closing of USD shorts for 1 to 3 months cannot be ruled out

"This would ease any potential credibility issues for the Fed which would dampen inflation concerns, at least until the end of Chairman Powell's term. Nonetheless, the USD weakness this week suggests that investors continue to re-evaluate what ‘US exceptionalism' means.

For a number of years, the ‘buy America' trade has seemed to be a safety net for many investors around the world." "This is no longer the case, and the failure of higher US Treasury yields to boost the dollar this week suggests that investors are continuing to rethink their views on the risks facing the US economy. While there are a wide range of views on the US budget, growth outlook and inflation, the rising risks surrounding all three are clearly keeping the Treasury market on edge.

This, in turn, is having a negative impact on US stocks and the USD." "As such, the outlook for US assets should be viewed in the context of alternative investments outside the US market. It is possible that some of these markets are now starting to look overbought. While we see EUR/USD higher at 1.15 on a 12-month view, we cannot rule out the possibility of USD short-covering on a 1-3-month horizon. Similarly, while we see USD/JPY at 140 on a 12-month view, we see the risk of a pullback to 145 on a 1-3-month view." (alg)

Source: FXstreet