Dollar: Amid talk of a deliberate devaluation of the dollar, analysts at the Japanese bank MUFG suggest looking at the situation through the prism of bond yields. Their historical analysis shows that extreme pressure on the dollar often ends in stabilization rather than collapse.
Extreme signals Are not a trend yet
MUFG discovered an important pattern in the behavior of markets after sharp jumps:
- Dollar index (DIXI):After reaching peak values, it usually stabilizes in a sideways range.
- Gold:Often undergoes correction within one to three months after rapid growth.
- Developing country currencies:During such periods, they tend to grow faster than traditional safe haven assets (the Japanese yen and the Swiss franc).
This means that the current noise around the “depreciation” of the US currency is not yet confirmed by the history of long-term trends.
Key detail: fiscal policy shock
The key difference in the current situation is the direction in which interest rates are moving. At the time of analysis, US Treasury yields remained abnormally high for a period of currency weakness:
- 10-year papers:~4.72%.
- 30-year papers:above 5.2%.
According to MUFG, these dynamics are more akin to a fiscal shock (market fears about the huge US budget deficit) and a term premium than to an accommodative Fed policy.
“If yields remain high, we see dollar stabilization and gold consolidation as a more likely outcome, rather than accelerated capital outflows from US assets,”- said the bank.
The market simply demands a higher fee for holding the debt of a country with a high deficit, but at the same time continues to trust American assets as reliable tools for preserving capital.
When will the real collapse begin?
The analysts' conclusion will change only in one case: if profitability begins to decline significantly.
Исторически именно те эпизоды, когда золото росло одновременно со снижением доходности облигаций, приводили к настоящему и устойчивому падению доллара. Это сценарий классического бегства инвесторов от американского госдолга. Пока же ставки высоки, капитал находит американские бумаги привлекательными даже при дешевеющей валюте.
What to expect before the end of August
The market is in anticipation mode ahead of Fed Chairman Kevin Warsh's speech in Jackson Hole. Fresh data supported dollar positions:
- Inflation in July amounted to3,7%on an annualized basis.
- Bond yields rose following the data.
- The market estimates the probability of a rate hike in September at36%.
Under these conditions, Warsh's statement becomes much more important than political headlines about devaluation. If the head of the Fed confirms his readiness to fight inflation at any cost, high rates will remain longer, which will help stabilize the dollar.
Final checklist from MUFG:
- Yield > 5%:The dollar is likely to consolidate (sideways movement). The “devaluation” strategy is not viable.
- Yields fall + Gold rises:A signal for the beginning of a sustainable weakening of the dollar and an exit from American assets.
- Emerging markets:They are now of greater interest to speculators than classic safe havens like the yen.