US 10-year inflation expectation (10-year breakeven inflation rate), US 10-year TIPS (Treasury inflation-protected securities and 10-year treasury yield:
10-year breakeven inflation = 10-year treasury yield - 10-year TIPS
2.4 = 1.58 - (-0.82)
USD Index:
We will be able to establish the relationships between the US rate and USD from the 2 charts above.
Generally speaking, the 10-year US inflation expectation and treasury yield have an inverse relationship with the USD index. This means that when the 10-year US inflation expectation and treasury yield move up, the USD index will move down and vice versa.
As for the 10-year TIPS, it has a positive correlation with the USD index. This means that these two will move in sync with each other.
After we had determined the relationships between the US rates and the USD index, we could understand the rationale behind the recent USD depreciation. Moreover, we could also understand the causes for the recent rises in the US inflation expectation from the formula.
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