Dollar keeps edging higher on China fears & US yield surge

The US dollar has continued to grind higher, with the DXY index on track for a fifth consecutive weekly gain on the back of more bad news out of China, continued pressure on risk sentiment, and a new cycle high in long-term US Treasury yields. In light of the deteriorating situation in China’s economy and financial system, we have revised down our forecast for the renminbi. We will take stock of our other forecasts next week; overall our projections are already consistent with a further drop in risk sentiment, albeit not one driven primarily by China concerns. Recent developments strengthen our conviction that the greenback will rebound further in the second half of the year.