Will rising US bond yields ride to the dollar’s rescue?

For most of this year, the dollar’s value against other “majors” has tracked the gap between 10-year government bond yields in the US and the countries where these other currencies are issued. However, this relationship has broken down over the past month, with the greenback weakening despite the gap in bond yields remaining broadly stable. We don’t expect the dollar’s slide to last, though, as bond yields rise faster in the US than elsewhere next year.