Dollar Slides as Treasury Yields Hold Above 4% Now

The US dollar softened on recent trading days as investors grew more confident the Federal Reserve will begin easing policy next year, and fresh tensions between Washington and Beijing weighed on safe‑haven demand. At the same time, benchmark Treasury yields — especially the 10‑year — remained elevated above the 4% mark, reflecting a mix of inflation persistence, fiscal issuance worries and short‑term funding stress in repo markets.

Dollar moves: Fed bets and trade frictions

Currency traders trimmed long dollar positions after data and central‑bank commentary pushed up the odds of Fed rate cuts over the coming quarters. That shift coincided with renewed diplomatic friction between the US and China, which can create episodic demand for defensive currencies, but in this episode the easing rate outlook carried more weight and nudged the dollar lower.

What drove the slide

Key drivers were updated Fed‑policy expectations and positioning flows. As markets priced in a later timetable for tighter policy, investors rotated out of dollar bets. The drop was moderate — the dollar index fell only a fraction on the day — suggesting traders are still cautious about persistent inflation risks.

Near‑term signals to watch

Watch incoming US inflation prints, Fed speakers and any escalation in Sino‑US trade rhetoric. Stronger‑than‑expected inflation or hawkish Fed comments would likely cap further dollar weakness, while clearer signs of slowing US growth would accelerate dollar softness.

Treasuries: yields steady above 4% amid funding pressure

Despite dollar softness, Treasury yields held at elevated levels. The 10‑year yield remained in the low‑4% area, driven by a combination of sticky inflation expectations, heavy Treasury issuance and intermittent strains in short‑term funding markets.

Repo stress and liquidity cues

Money‑market frictions have reappeared, with spikes in general collateral repo rates and increased usage of the Fed’s standing repo facility by banks. These indicators show episodes of tighter liquidity that can push up term premia and keep longer yields higher than simple Fed‑path models imply.

Outlook for yields

Strategists broadly expect yields to remain elevated in the near term. If the Fed does move toward cuts next year, short‑dated yields should fall first, but long‑dated yields could stay supported by inflation and fiscal deficits — keeping the 10‑year near the low‑4% range over coming months unless a clear disinflation trend emerges.

Conclusion

The recent move sees the dollar soften amid growing bets on Fed easing and renewed trade tensions, while US Treasury yields stubbornly remain above 4% owing to persistent inflation concerns, fiscal supply and episodic funding strains. Short‑term liquidity pressures in repo markets and continued issuance are supporting term premia, meaning long yields may not fall in step with short rates even if the Fed begins easing. Market participants should monitor upcoming inflation data, Fed commentary and repo funding conditions closely: these will determine whether the dollar weakness continues and whether the 10‑year yield reverts materially below the current range. Overall, expect a cautious environment where policy signals and liquidity episodes drive headline moves.