The positive correlation between the 10-year Treasury yield and the dollar - higher yields, stronger dollar - has broken down. The dollar is now down over 10 % YTD: despite rising 10-year Treasury yields, the Dollar Index has hovered just above the crucial 98–99 band since February.
Capital is heading elsewhere: foreign investors have been trimming US positions while European equities outperform, keeping downward pressure on the currency. Rate cycles are also out of sync: the Bank of Japan only began hiking in 2024; the US and Australia have barely eased; New Zealand has already cut by 200 bp; Canada and the euro area are 2 percentage points below the Fed.
This could have major implications for investors who are still loaded up on US dollar denominated assets. An upcoming podcast on our channel will go further into how you can reduce your dollar risk, but in the meantime we spoke to Kambiz Kazemi who is Chief Investment Officer at Validus Risk Management about the risks now inherent in what was the world's reserve currency.
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