FX Update: The dollar has traded firmer

FX Update: The dollar has traded firmer on the back of perky Treasury yields over the last day, although a dip in yields today has eroded some of the greenback's upside impetus. The 10-year T-note yield was showing a 2.3bp decline, at 1.462%, as of the early London session, though remains up by over 5 bp on the week. The U.S. yield differential versus Bunds and JGBs, among other sovereigns, has widened further this week. Amid this backdrop, the DXY dollar index printed a two-day high at 91.10, which has continued some quite choppy price action, having recovered from the yesterday's six-day low at 90.63. USD-JPY clawed out a fresh eight-month high at 107.22, aided by ongoing yen softness, despite the tumble in global equity indices, although this masks a rotational shift out of growth stocks, which are principally in the tech sector, to more cyclical stocks in the finance, energy and real estate sectors. Growth stocks are valued more in terms of expected future earnings than cyclicals, making them more vulnerable in the environment of rising rates, especially given their extreme valuations. Rising yields erodes the present value of future expected cash flows, although this can be offset by concurrent rises in expected earnings. Against the backdrop of falling equity markets, AUD-JPY's 0.6% gain today -- a cross which is widely seen as a currency market barometer of investor risk appetite -- looks incongruous at first glance. But bullish factors for the Aussie are apparent, including Australian January trade data showing the biggest surplus on record, alongside a near 10bp jump in the 10-year Australian yield, while the Kiwi dollar was given a boost by rising milk price forecasts alongside a 11bp-plus rise in New Zealand's 10-year yield. The antipodean yields have been rising even more than U.S. yields of late, which has been supportive of AUD-USD and NZD-USD. The former of these rose over 50 bp in recouping to levels above 0.7800. A major focus will be Fed Chair Powell's upcoming remarks later today after Chicago Fed President Evans said the recent rise in yields reflected economic optimism.