Falling yields no problem for the US dollar

The US dollar is at the best levels of the day as equities wilt. The S&P 500 is down 0.3% and the Nasdaq down 0.4%.

The declines in equities and the rally in the dollar come despite falling yields for the second day. US 10-year yields are down 4.4 bps today and near the lows of the day.

One of the reasons the dollar is strong is that yields elsewhere are falling faster. The market is coming around to the idea that the ECB will cut rates before the Federal Reserve; the Australian dollar also remains under pressure after the RBA decision this week.

The euro is lower for the sixth day in a row as the market prices in more and more ECB rate cuts. Next week’s meeting will likely emphasize data dependence but there’s a clear pattern of lower growth and lower inflation in the recent numbers so the risk is that Lagarde opens the door to cuts.