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Dollar growth looks inconclusive



The strengthening of the dollar is developing on the optimism around the economic recovery, which manifests itself in the form of a strong slope of the yield curve of US government bonds. Now he is the coolest in the last 5 years. The Fed is pressing the near end of the chart literally to the floor, and bonds with maturities over three years are seeing skyrocketing growth. In the current situation, this predicts an increase in inflation rates in the near future. These forecasts have two explanations. The first is the expectation of more confident economic growth, which will allow the US Federal Reserve to normalize rates in the long term, by curtailing emergency support programs for the economy. The second explanation for market dynamics is less optimistic. Growth at the far end of the curve is due to both higher inflation expectations and an anticipated increase in the supply of government bonds, which undermines their price. 30-year Treasury yields climbed to 1.92% and almost returned to pre-crisis levels of 2%. Decades yield 1.31% versus 1.56% a year earlier, while they have come a long way from 0.5% in July last year. Higher yields attract buyers of long-term US government bonds, creating a pull in the dollar. However, it is worth looking at the situation from a different angle: an increase in profitability means a fall in prices for these securities. That is, the balance has already shifted towards sellers. The nature of the stimulus measures and multi-year lows for many commodities last year make the most likely scenario for the start of a new commodity supercycle, within which the dollar sagged in both 2000 and the mid-1930s. and the early 1960s, which sets up that the current dollar recovery is just a small bump on a long way down. _______________ Alexander Kuptsikevich, Lead Analyst, FxPro

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