The currency connection

What are the ramifications for the U.S. dollar? If higher long-term rates are indicative of an improving U.S. economy, that would be bullish for the greenback. If there is an inflation component to stronger economic growth, and if higher long-term rates are indicative of that, the Fed will be more likely to raise short-term rates. That, too, would be positive for the U.S. dollar, causing investors searching for high short-term yields to put their cash in the U.S.

Overall, higher long-term rates are fairly promising for the U.S. dollar. Thus far, however, this has not been reflected in the dollar’s action against most major currencies, including the euro.