MUFG Dismisses USD Debasement Fears as Market Focus Shifts to Fiscal Concerns

US Dollar consolidation has left markets pondering US fiscal concerns and potential 'USD debasement', but MUFG analysts argue that past episodes of dollar weakness, gold strength, and rising Treasury yields do not necessarily validate these fears.

In a recent analysis, Derek Halpenny and Abdul-Ahad Lockhart examined similar previous episodes where the Dollar Index (DXY) was weak, gold was strong, and Treasury yields were high. They found that extreme readings in the signal did not lead to persistent dollar losses.

Instead of debasement, MUFG's analysis shows DXY stabilisation and gold corrections over one to three months. As long as yields remain elevated, the analysts predict that the more likely outcome is dollar stabilisation, gold consolidation, and selective outperformance in carry-sensitive FX rather than a sustained debasement.