BNY strategist Geoff Yu argues that rising European real yields are increasingly offsetting traditional support for the Dollar from higher US real rates. He notes that the spread between US and European real rates has stayed tight, limiting further Dollar upside. Yu adds that the Dollar currently lacks a compelling recovery case from either nominal or real rates.
Real rate spread limits Dollar upside
“While we acknowledge that the market will always be more partial to higher USD real rates, the move in European equivalents is stronger, which will serve as a buffer against further dollar strength for now, especially if safe-haven demand has peaked.”
“Consequently, the spread between U.S. and European real rates has kept to the tight range seen over the last six months.”
“Dollar hedging may have come off due to haven interest, and we don’t expect a return to the pre-conflict status quo.”
“Nonetheless, the dollar is currently not making a case for a broader recovery based on nominal or real rates.”
“The market will likely wait to see where real rates settle as the growth impact from the conflict becomes clearer over time.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/usd-real-rate-support-capped-by-europe-bny-202603260846
