Dollar reconnecting to interest rate differentials again - AmpGFX

Greg Gibbs, Founder, analyst, & PM Amplifying Global FX Capital Pty Ltd argues that it is easy to be cynical about newfound USD bullish sentiment, where suddenly yields and rates matter for currencies.  

Key Quotes:

"However, rates and yields have more often played a dominant role in currency markets."

"Now that the equity market has become more volatile and confidence in the global economy has ebbed, we may see the USD continue to reconnect to its interest rate and yield differentials."

"In more automated and index driven markets, we may see a surprisingly rapid rebound in the USD with limited retracement. Political uncertainty has weighed on the USD over the last year, but Trump has gained traction with tax reform, trade policy, progress in Korea, and can claim credit for stronger economic momentum."

"A more assertive policy towards Syria and Iran may help improve Trump’s approval at home while increasing geopolitical uncertainty."

"It is too early for the market to be fretting about twin deficits."

"It needs to wait until there is a clearer picture of how Trump’s policies influence potential output, and the peak in US rates and yields are in sight."