The trajectory of the DXY will be determined by the battle between inflation and deflation. If the narrative of sustained long-term inflation prevails, it will be dollar positive. The Fed is desperately trying to create inflation in this highly indebted economic landscape because inflation erodes the real debt obligation of debtors (the biggest debtor being the US government). In the short-term the inflation narrative could aid the DXY but over the medium- to longer-term the DXY is expected to sink...
The moves in the bond market this week has also reflected that the market is starting to buy into the Fed transitory inflation narrative and that interest rates will remain low for the foreseeable future, despite Janet Yellen's rubbish remarks on interest rates as of late.
Over the longer-term I expect 10-year treasury yields to remain in this downward deflationary channel. Like all the debt supercycle's we have had in history, this one will end just like the rest of them, with deflation. The velocity of money will bottom out (MV = PQ) and central banks will find themselves in a liquidity trap.
The Fed will continue to create deflation with the continued misallocation of capital into overpriced assets. Enjoy the ride to global Japanification people!
The moves in the bond market this week has also reflected that the market is starting to buy into the Fed transitory inflation narrative and that interest rates will remain low for the foreseeable future, despite Janet Yellen's rubbish remarks on interest rates as of late.
Over the longer-term I expect 10-year treasury yields to remain in this downward deflationary channel. Like all the debt supercycle's we have had in history, this one will end just like the rest of them, with deflation. The velocity of money will bottom out (MV = PQ) and central banks will find themselves in a liquidity trap.
The Fed will continue to create deflation with the continued misallocation of capital into overpriced assets. Enjoy the ride to global Japanification people!