Fiscal Risks Weaken USD's Haven Credentials

The US Dollar is losing momentum due to rising fiscal risks and shifting expectations from the Federal Reserve and Bank of Japan, according to DBS Group Research's Philip Wee.

Wee argues that markets have been focused on the joint US-Japan interventions as a way to support the Japanese yen, but this has led to underestimation of the potential negative implications for US Treasury holdings and the dollar.

Recent events, such as higher long-term US bond yields despite weak economic data, further support this view. Wee warns that this trend may weaken the traditional link between higher US yields and a stronger dollar.