Branch² Intelligence
A warning for the U.S. dollar: The historic bond-market buffer that protected the currency is fading.
Key takeaway
US policy dislocations erode the traditional bond-market buffer that supported the dollar, accelerating central bank dedollarization.
- Step 1US policy dislocations reduce foreign central bank demand for US Treasuries, eroding the dollar's bond-market buffer.
- Step 2Reduced Treasury demand pushes up US yields, tightening global financial conditions and strengthening the dollar in the short term.
- Step 3Higher US yields transmit to UK gilt yields via cointegrated bond markets, raising UK SME borrowing costs.
Source: MarketWatch
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