The week is set to end with the US dollar a bit higher against most currencies and the DXY Index just below fresh year-to-date highs. The dollar’s latest gains coincide with yet another week of rising long-term bond yields in the US and elsewhere. But short-term bond yields have generally fallen over this period, consistent with the softening inflation data out of the euro-zone and US. What’s more, the gap between short-term yields in the US relative to elsewhere seem to be a fading tailwind for the greenback. For the dollar’s “stronger for longer” run to continue, we think the baton will need to pass from yield gaps to safe-haven demand amid deteriorating risk sentiment.
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