For a sustained Dollar decline, two apparently contradictory events must occur.  The Fed will need to remain activist and vigilant in lowering rates.  And the economy must slow, but not too much.

For the moment, a Fed pause with US bonds trading in a range of 4.5% to 5.0% may prevent the Dollar from rising further, but it may not necessarily cause it to decline substantially. Yet a significant slowing in US employment gains would change the picture for both bonds and currencies.

If the European Central Bank doesn’t ease monetary policy, real interest rate differentials suggest the Euro could gain perhaps 10% against the USD within the coming two years.