Kit Juckes, Research Analyst at Societe Generale, suggests that the US dollar can still benefit from a move higher in US bond yields, but the rally is resting on less impressive foundations now.
“The dollar has lost about half of the gains it saw in the wake of Donald Trump winning the US presidential election.”
“Further dollar strength depends crucially on the market embracing the Fed’s slightly hawkish message and economic data supporting that view, while the slow pace of Fed tightening and low terminal rate projected by the FOMC act as a calming influence for investors, who will continue to buy yield, and therefore most EM currencies, on any dip.”
“US real yields have reversed half of their post-election rise. Optimism about President Trump’s economic plans is fading. The factors that drove capital out of Europe and into the US are looking less convincing. The dollar can still benefit from a move higher in US bond yields, but the rally is resting on less impressive foundations now. Another 4-6% gain from here is the most we can imagine – barely more than 1% above the late-December peak.”
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