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The US Dollar is under heavy pressure as the narrative shifts away from inflation and into the growing likelihood of a recession.

This is after the S&P Global composite PMI for the US fell to 51.2 from 53.8. It was expected to remain relatively stable.

The report’s comments were troubling, as the outlook for business leaders was rapidly deteriorating. The strength of the US dollar could also have a negative effect on business, as export orders have fallen.

Markit participants worry far less about inflation and instead seek refuges from weak growth. US 2-year yields are down 17 basis points today at 2.89%. That’s down sharply from last week’s high of 3.45%.

The dollar is particularly sensitive to short-term rates and is weakening across the board. USD/JPY has now extended lower to 188 pips and 134.38. The pair is now lower for the week.

The broader market appreciates falling yields as US equities climb towards the day’s highs. Fed funds are now pricing a terminal high in the 3.25-3.50% range, down from +4% last week.

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