"Significant" Dollar Downside Risks Continue To Build

Authored by Simon White, Bloomberg macro strategist,

The real yield curve continues to invert, deterring inflows to the US and keeping the dollar in a downtrend.

The Federal Reserve is expected to begin cutting interest rates at its meeting this week; the unresolved debate is whether they do 25 or 50 bps. While straightforward rate differentials are important for the performance of currencies, the yield curve – specifically the real yield curve – has an empirically stronger, leading relationship with the dollar.