NEW YORK: The greenbacks resurgence has more room to run if the currency completes a long-awaited reunion with an old friend: real yields.
The US currencys trade-weighted value adjusted for price pressures may return to post-crisis highs thanks to higher rates on Treasury Inflation-Protected Securities and geopolitical risk, according to Societe Generale SA strategist Kit Juckes.
“The dollars doing a stalwart job of re-coupling with yields and in real effective terms, its not a million miles from getting back to its January 2017 peak,” he wrote in a note on Thursday.
Juckes has long contended that in the long run, real yields — those on TIPS — are a more reliable indicator of a currencys direction than more commonly-cited nominal ones.
The theory goes that higher returns on risk-free rates after inflation increase the appeal of a countrys assets, boosting its currency in the process.