DBS Group Research, via Senior FX Strategist Philip Wee, highlights that the USD Index (DXY) has stayed in a defined range even as the US Treasury 10Y yield climbs above 4.50%. The report links this divergence to structural concerns over Trump 2.0’s macroeconomic policy, fiscal deficits and supply-side inflation, noting exhausted US consumer buffers and ongoing Iran-related stagflation risks.

Dollar index decouples from US yields

"The US Treasury 10Y yield climbed again by 7.9 bps to 4.67% overnight."

"Concurrently, a newly released Reuters poll revealed that a near-85% majority of economists now expect the Fed to hold rates steady at 3.50 to 3.75% for the remainder of the year, marking a sharp reversal from March when a near-70% majority anticipated at least one rate cut."

"On Wall Street, the S&P 500 Index fell for a third consecutive session, dropping 0.7% to close at 7353.61, which places the benchmark index 2.2% below its record high of 7501.24 reached last Thursday as investors worry that elevated pump prices will act as a tax on consumers."

"Despite the US Treasury 10Y bond yield rising above 4.50%, the level from which the Fed Funds Rate fell from last September, the USD Index (DXY) has remained locked in its 96-100 range set after its post-Liberation Day sell-off."

"Since Trump’s victory in the US Presidential election in November 2024, the DXY’s inability to move with bond yields reflects deep structural shifts in the market’s perception of Trump 2.0’s macroeconomic policy."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)