We break down the USD response function to Fed tightening into two components. The first is the expected total number of hikes in the coming years, approximated by the slope of the short-end of the US yield curve. The second is the expected timing of the next rate hike, approximated by short-term rate expectations. Our econometric analysis suggests that the steepening of the US yield curve has been the main support for the USD rally prior to Brexit. It has lost significance ever since, however, as investors pared back their long-term rate hike expectations and the curve flattened. Short-term rate ... (full story)