Synopsis:

Bank of America (BofA) attributes the recent depreciation of the US Dollar (USD) to a trio of influential developments that have affected US Treasury yields and interest rate differentials.

Key Points:

• Unexpected Treasury Announcement: The announcement of a lower-than-anticipated long-term US Treasury supply has had a damping effect on yields.

• FOMC's Perceived Stance: Comments from Federal Reserve Chair Jerome Powell following the November FOMC meeting were interpreted as relatively dovish, altering market expectations.

• Weakening Economic Indicators: A series of softer US economic data, culminating in a disappointing employment report, contributed to the shift in market sentiment.

Conclusion:

These three interacting factors have contributed to a notable decline in the USD, returning it to levels seen around the time of the September FOMC, after spending much of October hovering around year-to-date highs. The combined impact of these dynamics on US yields and the resulting interest rate differentials has been a significant force in the currency's recent movements.