Us Dollar Could Stabilize

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Us Dollar Could Stabilize

MUFG: US Dollar Could Stabilize Despite Weakness

According to analysts from MUFG, the chances of a major US Dollar collapse are very slim. All the debasement scares in the past actually end up causing US Dollar stabilization. The same will be true this time unless we see a major change in the Treasury yields.

For now, the US Dollar is weak across the board. However, that's not the first time the US Dollar has weakened. The US Dollar usually makes a comeback if we look at history.

High Treasury Yields Will Support The US Dollar

In the current environment, the US Dollar is weakening. Meanwhile, bond yields and gold are rising. However, history shows this doesn't automatically mean the USD weakness will persist. In reality, such episodes usually end up stabilizing the DXY.

History also tells us that gold prices go through a correction once the DXY stabilizes. This happens over the period of 1-3 months after the DXY stabilizes.

MUFG also commented that high-yielding currencies usually outperform safe-haven currencies in such an environment. So, that's also something we can expect in the coming months.

However, MUFG made it clear that high long-term yields remain important for this theory. A quick look at the 10-year and the 30-year yields shows that they are indeed high.

However, US Dollar stabilization could stop if US bond yields start to fall. Any decline in bond yields will also lower the appeal of the US Dollar. So, the bottom line is that this theory from MUFG depends on bond yields.

What would happen when the Treasury yields start to decline? Gold will rise, and the dollar's weakness will expand. This will lead to persistent USD losses.

Amidst all of this, let's not forget that past performance doesn't mean the same thing will repeat in the future. At the very best, we can consider past performance in our analysis to get an idea of what might happen. But what actually happens in the market is not something anyone can forecast with certainty.

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