At the start of the COVID-crisis we saw the USD and US 10 year yields move in negative correlation to one another. When 10 year yields rose, the USD fell. Why was this? This is because both were acting as safe havens. A worried world wanted to buy US treasuries (this causes bond yields to fall) and they wanted the USD as the most liquid currency
What changed?
Then in March the world started to focus on the US growth story. This more optimistic footing allows US 10 year yields to rise alongside the USD.
Why has the above changed again?
Germany in extended lockdowns, oil prices falling, AstraZeneca roll outs slowing + health scares have all led to the reflation trade being questioned last week. So, this is why we are seeing the COVID relationship between the US 10 year yields and the USD return.
So, in summary.
A worried world:
Rising US 10 year yields – falling dollar
Falling US 10 year yields – rising dollar
A world focused on US recovery:
Rising US 10 year yields – rising dollar
Falling US 10 year yields – falling dollar
Hope this helps to see what is driving the USD and when.
He also reaffirms that the 1-week repo rate continues to be the main policy tool for the central bank. As much as the headline looks enticing, he would not have been appointed if he isn’t going to follow through on Erdogan’s wishes.
“Whatever floats your boat!” is the saying of the day!
