The US 10-year Treasury yield finally broke above 5% earlier this morning for the first time since 2007. While it has since retreated, the psychological significance of this move continues to impact peripheral markets, with US equities lower and copper, often considered a barometer of the greater US economy, reaching 11-month lows. On the other hand, the USD remains essentially unchanged on the day and only higher by 1.7% in the last 30 days when measured against a basket of currencies.

Typically, currencies strengthen when their domestic interest rates increase compared to their peers. In the case of the USD, which is also considered a safe-haven, strength occurs during times of uncertainty. Yet as of late, neither higher treasury yields nor the conflict in the Middle East have resulted in significant dollar strength. In fact, the primary safe-havens of late have surprisingly been gold and cryptocurrency, taking many by surprise, especially when considering prevailing interest rates on cash. One can earn 5% or more on their cash, but most earn nothing on their gold or crypto holdings.

Whether these correlation breakdowns will last is tough to say. Considering the quiet period for Fed officials ahead of the next FOMC meeting has begun, the market will shift its focus to other data points as its primary drivers. The highlights of this week include major tech company earnings releases, the Bank of Canada rate decision on Wednesday, US GDP figures on Thursday, and US PCE deflator prints on Friday.

EUR/USD is nearly unchanged on the day as the market awaits the European Central Bank rate decision this Thursday. Survey expectations are for the first pause in a 15-month battle against inflation, following 10 consecutive hikes, leading up to this point with a 4% deposit rate. The US and the Eurozone are on significantly different paths in this regard, with the prevailing YoY CPI reading in the EU at 4.3%, while in the US, where current policy rates are 5.25-5.50%, the most recent CPI print is 3.7%. Relatively speaking, this potential pause at the ECB seems rather premature.

USD/CAD is also close to being unchanged on the day as the market awaits the Bank of Canada rate decision this Wednesday, with survey expectations at 5%, marking a second consecutive pause. Oil prices have remained steady overnight as Israel has yet to engage in a land assault on Gaza.

GBP/USD is close to being unchanged on the day, with Manufacturing PMI data scheduled to be released tomorrow.

USD/MXN is slightly higher on the day, as economic activity data this morning shows signs of strength. Bi-Weekly CPI is set to be released tomorrow, with expectations of a 9 basis point drop to 4.38% on a year-over-year basis.

USD/BRL continues to be an unlikely point of calm within the emerging markets space, as the pair is slightly lower on the day. The pair typically has a very high beta to global risk but has remained steady, gradually moving lower as of late. On Thursday, the CPI reading for October will be released, with survey participants expecting a slight uptick to 5.04% YoY.