The dollar’s recent rally should soon cause global trade -- and therefore demand for dollar-denominated assets -- to decline, leading to a weaker US currency. The catalyst for such a drop could, paradoxically, be a more hawkish Federal Reserve at this week’s Jackson Hole gathering. Yields and yield curves indicate flow-driven demand for the dollar and USD assets, while the level of the dollar has implications for the stock of these assets. A higher dollar makes it more expensive for foreign borrowers of dollars to service their debt, generating deleveraging pressure. It also makes the cost of buying new dollar assets ... (full story)