There are two major drivers for the USD currently: monetary policy divergence and global capital flows. The USD started its recent leg higher just as the US 2y yield relative to the DM World broke out of a range (see Exhibit) it had been in since the start of the year. Initially it was the market pricing in the higher probability of the Fed hiking rates this year (now at 67%) but now it appears to have evolved into a theme of policy divergence coming from both sides, particularly supported the dovish ECB last week. However this dovishness (outside of the Fed) has also had the effect of flattening the US yield curve ... (full story)