Bank of America Global Research discusses the impact of front end rates on the USD direction.
"The apparent apathy of FX to sharply higher front end rates across major markets is evident in the decoupling of FX and rates implied volatility. However, this is not equivalent to the claim that FX has not responded sufficiently to front end differentials," BofA notes.
"Front end pricing matters and seems more durable for the US than elsewhere, in line with our still constructive USD outlook. As for FX volatility, we show US real rates may be a more important inflection point than front end rates, especially as the Fed’s footprint in the TIPS market reduces in the months ahead," BofA adds.