"Here's Morgan Stanley on the puzzle of the weaker US dollar:...

"Here's Morgan Stanley on the puzzle of the weaker US dollar:
Comments from Secretary Mnuchin suggested comfort with a weaker USD as it aids the US competitive position.
Strong markets and growth should keep the USD weakness trend in place – it is likely a rise in capital market volatility or deteriorating fundamentals abroad that would allow for a USD upward correction.
Asset volatility remains offered and economic data have stayed strong globally, consistent with USD breaking lower. Importantly, the longstanding correlation between real and nominal yield differentials and FX rates is breaking down.
We interpret the price action as suggesting that USD inflows to purchase US assets are being dwarfed by USD outflows for funding purposes.
USD offers both a low price and high availability of capital, rendering it, in a world of strong capital demand,a very attractive source of funding. Thus,a weak USD is reflective of the strong global outlook, in our view.
The driver of USD weakness has important implications. If USD is weakening because capital is flowing into higher-yielding areas such as EM, then this should mean that US capital markets likely stay supported.
However, if USD is weakening while US bond yields are rising significantly and the currencies of net savings surplus countries are rising, that may tell a different story. In this latter case, this signals the prospect for declining liquidity conditions and higher asset volatility to come."
SHM.com
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"USD offers both a low price and high availability of capital, rendering it, in a world of strong capital demand,a very attractive source of funding. Thus,a weak USD is reflective of the strong global outlook, in our view."
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Is this suggesting the potential for global growth outside US is dwarfing the growth outlook in US hence outflow of capital in USD to fund these EM projects?


"However, if USD is weakening while US bond yields are rising significantly and the currencies of net savings surplus countries are rising, that may tell a different story. In this latter case, this signals the prospect for declining liquidity conditions and higher asset volatility to come."
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I have no idea what this means....


Perhaps some economist can explain in more lay man terms what it is trying to say or just curve fit an explanation on the effect. My understanding is that a bond yield spike removes liquidity and with Feds reducing their bond holdings this can only take take away excess liquidity but I don't understand why USD weakness?