Dollar Slides as Fed Cuts Priced, Yields Fall Now!

The U.S. dollar weakened and Treasury yields dipped after signs of slowing U.S. activity and a data blackout tied to a partial government shutdown pushed markets to price earlier Federal Reserve easing. Traders pared back the greenback while bond investors recalibrated expectations for the timing of the next rate cut.

Dollar index pressure and what’s driving it

The U.S. Dollar Index (DXY) moved lower, reflecting growing market conviction that the Fed will deliver rate cuts sooner than previously thought. Soft activity readings — including an ISM services reading hovering around the 50 breakeven — plus the disruption to official data flow from a partial government shutdown have combined to heighten uncertainty and shift pricing toward earlier easing.

Data blackout and policy expectations

With some economic releases delayed, investors have leaned more heavily on partial indicators and analyst forecasts. Major banks revised their Fed-cut timelines; for example, some models now point to the first cut being brought forward into the autumn. That shift reduces the dollar’s near-term appeal relative to other currencies and supports lower nominal yields.

Treasury yields, bond ETFs and inflation-linked paper

Treasury yields ticked modestly lower at the recent close: the 10-year around 4.13%, the 2-year near 3.58%, and the 30-year about 4.71%. The yield moves were consistent with traders increasing the probability of earlier Fed easing. Core bond ETFs tracking the broad U.S. aggregate showed small moves — for example, AGG and BND were essentially flat on the session — while TIPS proxies (like TIP) were also little changed as real-yield dynamics remained mixed.

What bond investors are watching

• Key upcoming labor and inflation data (once released) that will confirm or reverse the market’s shifted cut expectations.
• Resolution of the government funding impasse; a prolonged shutdown would keep data flow constrained and add to volatility.
• Movements in breakeven inflation and real yields, which determine TIPS performance versus nominal Treasuries.

In short: weaker activity signals and political disruption pushed markets to price Fed easing earlier, pressuring the dollar and nudging Treasury yields down. If you want, I can monitor a specific benchmark—e.g., the Bloomberg U.S. Aggregate via AGG/BND or the TIPS market (TIP)—and send updates on price, yield and positioning.