Are weakening US bonds (and thus higher yields) going to make the dollar stronger or weaker, any why? (I feel like there's several parts that play into it - or different long term vs short term effects)
Domestic bondholders cashing out will have no effect on dollar value and they are the majority. International bondholder may want to store their wealth in another currency and will put pressure on the dollar. Question is where is good place to stash money now outside the US? In addition US bond market is related to reserve currency status but most recently more countries opt out in favor of bilateral trade agreements settled in currencies other than dollar. This may drive dollar down together with bond market more than anything else. But as long as the US will be able to maintain the image of sole superpower and keep various regions of the world politically and militarily unstable then the US dollar and bond market should be fine. This is good return on tax and deficit money. After all this is not normal supply and demand market and any strictly economic analysis will fail to predict bond and currency market direction.
Have no fear. Uncle Ben will not let yields rise and/or the dollar strengthen too far, just yet. Expect the Fed to "clarify" their position within a handful of weeks (or sooner). Nearly 2 dozen countries have cut interest rates in 2013. Race to the bottom. QEfinity. http://www.tradingeconomics.com/country-list/interest-rate The question is will the Feds clarification be enough to inflate markets to fresh all-time highs or at least go range bound in the top range? If not, DC will get behind Ben and do something to head off the very hungry grizzly. The game will eventually end, in our lifetime. There will be an exogenous event to blame as explanation to the masses. The event will not be Uncle Ben failing to contain rising rates or dollar strength. Race to the bottom! Trade On!
Rising rates and widening of the spread as compared to the German Bund, are bullish for the dollar: this graph is showing it.
The fact that the US seems to be the best of the worst (and maybe by a long shot), will keep upward pressure on the dollar. It could allow the dollar and stocks to rise together, which hasn't occurred for the most part since the 90's.
The Fed can afford to pick up the ten-year rates up to 2.75% / 3%, but what level of dollar will be able to tolerate the fragile U.S. economy?
If EurUsd breaks upward 1.328 then, according to the technical analysis, we will get 30-years American rates at 4%.
As long as U.S. interest rates will continue to rise there is no hope for gold. A TNOTE above 2.50%, however, might be a very interesting entering signal for gold (and bonds).