Over the last few weeks and accelerating towards the end of last week, the US bond market collapsed.  During that period, the 10-Year US Treasury yield rose 50 basis points to 5.15%, its highest level in nearly a year.  Meanwhile, the USD rose to its highest levels in a couple months.  Coincidence? Of course not. The relationship between the USD and US interest rates has become increasingly predictable, to the extent that increases or decreases in rates are consistently followed by a proportionate change in the value of the USD.  As a result of globalization, capital can be quickly moved to the country that offers the highest risk-adjusted return.  This is especially relevant for the US, which as the world’s least risky country (from a financial standpoint), tends to attract a big chunk of the world’s savings.  Forex traders should take note.

Read More: Dollar continues to strengthen from jump in Treasury yields