As US yields range-trade, money is leaving the dollar – Societe General

Macro Strategist Kit Juckes at Societe General provides some analysis on the treasury yields and its impact on the greenback.

Key Quotes:

“If I plot the JP Morgan EM currency index against US real yields, I see a picture that suggests that rising real yields support the dollar, but a trendless dollar encourages investors to head back off in search of higher yields elsewhere. Apart from the mid-December spike, 10yr TIIPs yields have basically been in a 35-45bp range since late November, after the initial post-election spike. We're around 42bp today, awaiting Janet Yellen's testimony to lawmakers at 15:00 GMT. I think we need a break above 50bp to see more durable dollar strength (i.e., a move that can't be de-railed by news events overnight...)”

“It seems unlikely however, that Ms Yellen will be the catalyst for a significant move in yields or dollar. The forecast of 3 rate hikes this year is ahead of market pricing but she's unlikely to given much away on that front, and the focus of questioning could be as much on financial sector regulation as monetary policy.”