The record low two-year Treasury yield, coupled with renewed concerns regarding the US labor market, is weakening the case for a strong dollar, HSBC strategists noted, according to exchangesrates.org.uk.
The two-year yield fell to new lifetime lows below 0.1% earlier this week even as yields at the long end of the curve continued to rise.
The divergence between yields at the short and long end of the curve seems to be resulting from the Fed’s commitment to keeping interest rates at record lows for a prolonged period and the rising inflation expectations.
“While interest rates currently enjoy little traction in the FX market, historically currencies have tended to be more correlated with 2Y yields than 10Y yields,” HSBC strategists said.
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