More fake financial news from CNN: “Dollar drops as Trump’s latest crisis alarms investors.” That is nonsense: the dollar fell marginally overnight because the spread between US and German bond yields rose.
German bond yields have been more resilient because 1) Chancellor Angela Merkel likely will be elected to a fourth term in September, 2) the next German government probably will be a Christian Democrat-Free Democratic coalition with a stronger growth agenda, 3) strong European growth will lead to a gradual exit from the European Central Bank’s quantitative easing and negative interest rates, and 4) the outcome of the French elections removes an important threat to Europe. The chart shows the relationship between the US-German 10-year yield spread and the Euro exchange rate.