When Higher U.S. Yields Stopped Lifting the Dollar
Steve Kamin, writing at Econbrowser, starts from the textbook relationship: increases in U.S. 10-year yields relative to those abroad boost the dollar. That positive link between the dollar and the gap between U.S. and foreign yield-curve slopes held until early in Trump's second term. Then came April 2025 and the announcement of 'reciprocal' tariffs. Immediately after that, the sensitivity turned negative and began fluctuating widely around a lower baseline — higher relative U.S. yields no longer went with a stronger dollar.
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Kamin's reading: if the real interest differential model is the right lens for a big driver of dollar movements, then rising yields combined with a dollar that doesn't appreciate point to heightened risk rather than a higher path for short-horizon interest rates.
There's a second way to split the same move. Torsten Slok's decomposition of roughly a percentage point on the ten-year yield since the start of the year attributes about half to higher real short rates and the other half to real risk premium, inflation expectations and inflation risk.