Steven Englander, Columnist

Dollar's Decline Laid Bare in Real Rates

One thing that could reverse the greenback's drop is if the Fed's doves acknowledge the need to boost interest rates.

January 30, 2018 at 6:00 PM UTC

By Steven Englander

Steve Englander is the Global Head of G10 FX Research and of North America Strategy for Standard Chartered Bank.

The dollar is depreciating.
Photographer: Andrew Harrer/Bloomberg

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You can make a career as a currency strategist talking about the influence that nominal interest-rate differentials have on exchange rates and no one will call you out. You only get caught when it doesn’t work and you have to figure out a clever explanation for why not. This is one of those periods.

That's especially true when it comes to the dollar, which has fallen steadily over the past 12 months despite the increase in rates and bond yields in the U.S. It’s hard to look at the chart below and make the case that the red line (nominal 10-year rate differentials between Germany and the U.S.) is heavily influencing the blue line (the euro-dollar exchange rate) or even heavily correlated with it.