US Dollar responding less to yield-gap compression – Standard Chartered

Steve Englander, Standard Chartered’s head of research for global Group-of-10 currencies, wrote in a note to clients, despite the decline in the US Treasury bond yields against its global peers, the US Dollar has stood resilient due to its safe-haven demand.

Key quotes

“A week ago, the USD was still responding to risk appetite and spreads, in line with the prior three months.”

“Now, the USD does not seem to be responding much to the compression in spreads.”

“We suspect that increasing concern about where the USD is positioned on the ‘dollar smile’ curve is diluting the impact of the USD’s much-reduced yield advantage.”

“The fear is that deteriorating growth and financial instability will lead to safe-haven USD demand, offsetting any yield moves.”