Growth concerns buoy the dollar despite falling US yields

Although it has fallen back a bit today after China delivered a surprise cut to banks’ reserve requirements, the US dollar has otherwise continued to appreciate against most currencies. The dollar’s strength appears increasingly driven by concerns about the pace of the global economic recovery: “reflation” trades across currency, bond, and equity markets have remained under pressure, with bond yields falling particularly sharply. Next week’s key data releases include US inflation, which we expect to have risen further, and China GDP and activity data, which we think will show a further slowdown. That may reinforce concerns about the global economic outlook and support the dollar. In addition, Fed Chair Powell will testify to Congress on the economic outlook.