End of YCC: keep calm and "carry" on

The Fed’s emphasis on data dependency amid even more evidence of resilience in the US economy pushed US Treasury yields up and the greenback higher against most major G10 currencies this week. Taken together with mixed activity data out of Europe and China, these data suggest to us that yields may yet act as a tailwind for the dollar if the US economy avoids recession and outperforms other major economies. Meanwhile, with the BoJ, in effect, ending yield curve control (YCC), we think the yen will fare relatively well if US bond yields rise further. All told, we are sticking to our view that both the dollar and the yen will outperform other major currencies over the coming months.