The US Dollar (USD) is firmer across the board and the US yield curve (10 minus 2-year Treasury yields) steepened, BBH strategists note.

USD remains bullish in short term

“The narrative is financial markets are positioning for a Trump win ahead of the November 5 election. Donald Trump plans to slash taxes and raise import tariffs if elected. This combination is inflationary and could force the Federal Reserve (Fed) to keep policy restrictive for longer.”

“A loose fiscal/tight monetary policy mix is generally positive for a currency and supports higher bond yields. Additionally, expansionary fiscal policy if not accompanied by stronger growth could worsen the US fiscal backdrop and raise the term premium on longer term Treasury yields.”

“We remain cyclically bullish on USD, but in the near-term softer US economic activity is a USD headwind.”