Dollar's Reunion With Real Yields Points Toward Post-Crisis High

(Bloomberg) -- The greenback’s resurgence has more room to run if the currency completes a long-awaited reunion with an old friend: real yields.

The U.S. currency’s trade-weighted value adjusted for price pressures may return to post-crisis highs thanks to higher rates on Treasury Inflation-Protected Securities and geopolitical risk, according to Societe Generale SA strategist Kit Juckes.

“The dollar’s doing a stalwart job of re-coupling with yields and in real effective terms, it’s not a million miles from getting back to its January 2017 peak,” he wrote in a note on Thursday.

Dollar's Reunion With Real Yields Points Toward Post-Crisis High

Juckes has long contended that in the long run, real yields -- those on TIPS -- are a more reliable indicator of a currency’s direction than more commonly-cited nominal ones.

The theory goes that higher returns on risk-free rates after inflation increase the appeal of a country’s assets, boosting its currency in the process.

Since both real and nominal yields are higher than January 2017 and the “global economy overall is facing political dangers,” the dollar could return to its cycle peak soon enough, Juckes wrote.

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