BBH strategists note that the US dollar (USD) is strengthening across the board, and the US Treasury yield curve (10 minus the 2-year Treasury yield) has become steeper.

USD remains bullish in the tiny term

“The narrative is that financial markets are positioning themselves for a Trump victory ahead of the November 5 election. Donald Trump plans to cut taxes and raise import tariffs if elected. This combination is inflationary and could force the Federal Reserve (Fed) to maintain contractionary policy for an extended period of time.”

“Loose fiscal/tight monetary policy is generally supportive for the currency and supports higher bond yields. In addition, expansionary fiscal policy, if not accompanied by stronger growth, could worsen the US fiscal position and raise the term premium on longer-dated Treasury yields.”

“We remain cyclically bullish on the US dollar, but in the near term, weaker US economic activity will act as a headwind for the US dollar.”