Major dislocations in US foreign policy are weakening the traditional bond-market buffer that protected the dollar, stimulating a dedollarization trend among central banks.
Key takeaway
US policy dislocations erode the traditional bond-market buffer that supported the dollar, accelerating central bank dedollarization.
- Step 1 · The triggerUS policy dislocations reduce foreign central bank demand for US Treasuries, eroding the dollar's bond-market buffer.
- Step 2 · Knock-onReduced Treasury demand pushes up US yields, tightening global financial conditions and strengthening the dollar in the short term.
- Step 3 · Reaches youHigher US yields transmit to UK gilt yields via cointegrated bond markets, raising UK SME borrowing costs.
The trigger is reported by the source below. The steps that follow are Branch²’s traced reasoning — how the shock could reach a business like yours, not a prediction.
Source: MarketWatch
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