Loading ...“The dollar is putting a “significant top,” Gundlach said. Its last top was in January 2017. The dollar has been “incredibly stable” this year, he said. “I expect the dollar to weaken, since the Fed is easing.” It was strong because of “yield starvation” across the globe. Foreigners need to buy U.S. bonds because of their yields, but can’t hedge their exposure back to local currencies, because it will drive their effective yields back below zero. Those investors must buy U.S. bonds “naked,” he said, driving the dollar up.”
“The copper-gold ratio suggests that the 10-year should be approximately 2%, according to Gundlach. Based on nominal 10-year GDP and the German bund yield, an indicator he has found to be highly reliable, the projected 10-year yield is 1.76% to 1.9%, depending on the next release of nominal GDP.
At the end of October, Powell said that he needs to see a significant spike in inflation before raising rates. “The Fed is basically telling you it wants sustained real inflation before it would consider raising rates,” Gundlach said. “Maybe they will cut rates, but they won’t raise them. I am surprised the long end of the market isn’t weaker.”