⚖️💵 Dollar Rises As Yield Differentials Plunged: Cable FX Macro

• We recently noted broad dollar trading uninspired from its yield differentials vs G10 peers, the dollar stood relatively unreactive to a sharp drop in rate spreads

• Our own measures of dollar <.RDDXY> (blue) and dollar rate spreads <.RDDXYIR> (green) are shown below. A decline in rate differentials has been followed by spot trading during previous days, however, the dollar spiked during EU session as rate spreads plunged

• As the rates-dollar relationship breaks, today's trading proves we are moving into the part of the dollar smile where the greenback is reacting to volatility or global risk sentiment. The broad Fed repricing lower should not pressure the USD during these conditions