Rates and currencies - the rationale for a strong dollar?

The back-up in rates makes US fixed income attractive relative to other developed markets. The US 2-year and 10-year now offer a better yield than Japan and long-rates in Europe. With QE3 less likely and the US economy doing better, there is another reason for dollar strengthening. However, the demand for the dollar will come from equity and fixed income yield holders. Those total return fixed income buyers may not view this as a good environment except if there is a general global increase in rates.