As developed market government bond yields have risen, they have become a more important driver of currency markets than was the case last year.
One interesting feature of the two brief equity market sell-offs that we’ve seen so far this year is that they have not been accompanied by the ‘normal’ reaction in G10 currency markets. Usually, aside from the US dollar, safe havens such as the Japanese yen and the Swiss franc tend to hold up best when ‘risky’ assets falter, while higher-beta currencies such as the Aussie dollar struggle. That was the case last year, not only during the Q1 pandemic-induced financial market panic but also during the smaller equity market corrections that occurred later in the year.
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