In April, Deutsche Bank's head of FX Research, George Saravelos warned, 'We're In The Middle Of Dramatic Market Regime-Change', raising fears of a dollar confidence crisis. A week later - after the 'pause' in tariffs, Saravelos warned that even if the tariffs are permanently suspended, "damage has been done" to the economy via a permanent sense of unpredictability in policy, warning that if Treasury market disruption continues, The Fed will have to restart QE.
A month later, and we are seeing increasing evidence that Saravelos is right as he highlights the widening gap between US Treasury yields and USD/JPY as the single most important market indicator of accelerating US fiscal risks.
The chart below speaks for itself, he says, the JPY is strengthening even as US yields are rising.
