"As long as US inflation expectations remain low, the Fed is unlikely to raise rates early.

In this respect, the 5Y/5Y inflation swap rising by 4bp on Friday was muted compared to the 10bp rise in the nominal US 5-year yield, driving real US yields higher. This is a short-term USD positive, but this support is unlikely to last long as the Fed may have no intention of allowing real rates to rise pre-emptively. An economy running high debt levels and relatively low returns on investment fares best when bond yields follow inflation expectations.

Hence, the Fed is likely to stay behind the curve, suggesting US real yields coming down again. However, it is not only the Fed which makes us USD-bearish".