Societe Generale Research discusses the current market drivers for the USD from the real-yields and positioning fronts.
" With US economic data consistently strong, and with wage growth on a clear, if slow, rising trend, there's enough to keep upward pressure on Treasury yields.
But how does that affect the dollar? The FX market ought to go on focusing on the destination of Fed policy rather than the shorter-term path, and of course, on relative rates rather than just what happens in the US.
At 3.14% today, US 1-year rates 5 years forwards are above the long-term dot, but below the May peak, and better described as being at the top end of their current range than anything else Real long-term rate spreads between Euros and dollars are going sideways (as both rise together), and EUR/USD is mostly driven by positions. Those provide some euro support, as indeed do GBP positions for sterling," SocGen argues.