RBC Sees Upside for Dollar If Rising Yields Drag Down Stocks

(Bloomberg) -- The gains for the U.S. dollar could accelerate if rising Treasury yields put more pressure on stock prices, according to Adam Cole, chief currency strategist at RBC Capital Markets.

The greenback has risen slightly against other currencies over the past week as traders wager that the Federal Reserve may start raising interest rates as soon as late next year. But those gains were muted in part by the stock market, which edged upward on the relatively upbeat assessment of the economic recovery offered after last week’s Fed meeting.

The stock market’s momentum last week has since waned, with major indexes opening lower Tuesday. 

“USD’s failure to gain more significantly as US bonds sold off should not be that perplexing when stocks are rallying,” Cole said in a note to clients. “But if higher bond yields, via valuation concerns, continue to put downward pressure on equities, expect USD gains to accelerate further.”

The Bloomberg Dollar Spot Index has only risen about 0.5% since before the June 22 Fed meeting, while U.S. Treasury yields have pushed higher. Ten-year yields have jumped about 24 basis points to 1.54%. 

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