Why Is the Dollar Plunging? Look at the Real Yield Gap: Chart

Will Dovish Fed Be the Death of the Dollar Rally?

The apparent breakdown of interest rates as the driver of the dollar’s value can be explained by adding inflation to the calculation, according to Daniel Katzive, head of foreign-exchange strategy for North America at BNP Paribas SA. The greenback has declined 4 percent against the euro since the beginning of February, while the gap between U.S. and German two-year yields rose 0.09 percentage point in the span. But adjusted for inflation, the spread shrank 0.60 percentage point, helping to explain why dollar-denominated assets have become less attractive.

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