Dollar Strength Fundamentally Driven by Yield Spreads

The US Dollar remains fundamentally supported according to Scotiabank's Global FX Strategy team. The team, led by Shaun Osborne and Eric Theoret, notes that the DXY has gained strength against most G10 currencies since early September.

This broad dollar strength is attributed to the 2-year yield spreads, which have been driving the gains in spot price. The Scotiabank team stresses that these gains are fundamentally driven, with spot largely moving in tandem with their fair value estimate based on 2Y spreads.

The recent gains have pushed the DXY toward its June 24 high and 2026 YTD high. The team also highlights the renewed flattening of the yield curve, which is garnering attention for its implications on the broader USD.