Relationship between US 10yr yield & the DXY
As traders look for signals on potential moves in the FX market, a frequent question I receive is regarding the relationship between the 10yr yield and the DXY.
US 10-Year Treasury Yield:
The US 10-year Treasury yield represents the interest rate on the 10-year government bonds issued by the United States.
It is considered a benchmark for long-term interest rates and is often used as a reference for borrowing costs across the economy.
This yield is influenced by various factors, including inflation expectations, economic growth, and monetary policy.
US Dollar Index (DXY):
The US Dollar Index, or DXY, measures the value of the US dollar against a basket of major foreign currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.
It provides a snapshot of the US dollar's strength or weakness relative to these currencies.
Relationship of US 10yr yield & DXY
The US 10-year yield and the DXY have a relatively strong positive relationship.
Increases in the yield on 10-year Treasuries have the tendency to draw capital into the US bond market because investors find US government bonds more attractive with higher yields.
Because of the increasing demand for the US dollar to buy these bonds, the dollar gains strength leading to a rise in the DXY.
As with any relationship between financial instruments, it is seldom 100% positively correlated given that there are a variety of factors, including inflation expectations, economic growth conditions, market sentiment, and central bank monetary policy.
US 10-Year Treasury Yield:
The US 10-year Treasury yield represents the interest rate on the 10-year government bonds issued by the United States.
It is considered a benchmark for long-term interest rates and is often used as a reference for borrowing costs across the economy.
This yield is influenced by various factors, including inflation expectations, economic growth, and monetary policy.
US Dollar Index (DXY):
The US Dollar Index, or DXY, measures the value of the US dollar against a basket of major foreign currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.
It provides a snapshot of the US dollar's strength or weakness relative to these currencies.
Relationship of US 10yr yield & DXY
The US 10-year yield and the DXY have a relatively strong positive relationship.
Increases in the yield on 10-year Treasuries have the tendency to draw capital into the US bond market because investors find US government bonds more attractive with higher yields.
Because of the increasing demand for the US dollar to buy these bonds, the dollar gains strength leading to a rise in the DXY.
As with any relationship between financial instruments, it is seldom 100% positively correlated given that there are a variety of factors, including inflation expectations, economic growth conditions, market sentiment, and central bank monetary policy.
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