How yields influence exchange rates

​

Bond yields play a key role in shaping currency movements.

​

Higher yields can attract foreign capital seeking higher returns, supporting a currency’s value. Lower yields may reduce capital inflows and weaken a currency, especially if inflation erodes real returns.

​

Relative yield differences between countries are particularly important. Changes in yield spreads can drive significant shifts in capital flows, affecting exchange rates and global financial conditions.

​

As a result, yield movements often have international spillover effects beyond domestic markets.