Morgan Stanley: The Dollar Has Decoupled From Treasury Yields - This Is The Best Way To Trade It

By Matthew Hornbach, Morgan Stanley global head of macro strategy

Interest rate and currency markets have oscillated in wide ranges over the past two years. Since mid-2023, 10-year US Treasury yields have traversed nearly the entire range from 3.5% to 5.0% five times before settling near the middle of that range – where they sit today. When US Treasury yields rose from the lower end of the range, the US dollar appreciated. And when they fell from the upper end, the US dollar depreciated. Coming into the year, we thought both the US dollar and Treasury yields would break these ranges to the downside – leaving the currency materially weaker and yields materially lower in 2025.