A significantly lower USD may have to await some unwind in elevated US yields – Scotiabank

USD consolidates as yields remain supportive. Economists at Scotiabank analyze Greenback’s outlook.

DXY gains remain stretched

High US yields and wide rate differentials will keep the USD well-supported in the near-term at least but the disruptive impact of the US Treasury sell-off is a niggling concern for investors and may be increasing the risk of a hard landing in the US.

Technical signals suggest the rally in the DXY is very stretched (overbought oscillator signals and a twelfth consecutive weekly gain – so far) and prone to some consolidation or a modest correction at least. A significantly lower USD may have to await some unwind in elevated US yields, however.