King Dollar?

The US Dollar Index, down today, is up more than 3% since the election of President Elect Trump and almost 7% since it became fairly obvious that his election was becoming more and more likely back in September. Treasury yields are up fairly significantly over that time frame as well. One might have thought that with a central bank talking about easing ahead of reaching targeted levels for consumer level inflation, that the US Dollar and yields from the belly of the curve on out to the long end might have done the opposite.

Are Treasury yields pricing in a tariff created wave of reaccelerating inflation? Not likely. Inflation was already reaccelerating and actually appears to be reaccelerating a little more slowly than it was several weeks ago, at least according to the Hedgeye model for CPI, which is something I pay for and has not only been more accurate than other models but ahead of them as far as timing is concerned as well.

Why the dollar strength? Expectations for organic economic growth due to a less stringent regulatory and a less vampirical fiscal environment? Pricing in less taxes and instead of fiscal largess, the insistence that the bureaucratic nightmare in DC become more efficient and behave more like a business? Just maybe. There is no doubt that something unforeseen only a few months ago is a foot and it surprisingly does not feel like the continued debasement of the fiat. Well, in relative terms anyway. Anyone long gold or bitcoin might still feel like a debasement is under way.

Oh, one other thing. If the value of the US dollar rises versus a trading partner, that of course works to offset the inflationary impact, as far as consumers are concerned, that might arise due to increased tariffs. Then again, much of the tariff talk might just be negotiated in nature, but with the threat of realism behind them as they have been used before, by this leader. Just some food for thought.