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How do bond yields affect forex markets?

Bond yields reflect interest rate expectations, directly influencing forex valuation. Rising U.S. Treasury yields attract capital into USD, while falling yields weaken it. Institutions model forex trades around yield differentials, known as interest rate spreads. Retail traders can monitor government bond yields as leading indicators of currency strength. Benefits: clear macro signals, especially during tightening or easing cycles. Risks: short-term divergences between yields and forex due to technical flows. Bond yields are a cornerstone of forex analysis—currencies follow money, and money follows yield.