A snippet from a Citi client note on FX, bolding mine. This is useful as background to the USD move we saw today in US time:
- For the medium to long term, we continue to believe that with the US embarking on late cycle fiscal stimulus, it needs to offer investors a discount on its assets - via higher yields, a weaker currency, or both.
- With yields doing the "heavy lifting" lately, stretched USD shorts have room to unwindand fuel a rally in the greenback.
- .... increased supply upcoming, yields likely rise further still
- ... a flatter curve/ higher yield/ higher oil price combination may slow growth and yield upside at some point bringing the $ back into play as a source of discount to foreigners financing US debt
