Yields on U.S. Treasuries climbed across the curve, with the 10-year reaching 4.411% and 2-year yields touching 3.954%, as bonds sold off on renewed inflation anxiety. The interplay between inflation expectations and Fed policy remains a key driver for DXY sentiment, especially with markets previously leaning toward a dovish Fed tilt.
Traders Eye Tariffs and U.S. Political Uncertainty
Despite the dollar’s safe-haven bounce, broader sentiment remains fragile. Ongoing concerns over U.S. trade policy and tariffs under the Trump administration have fueled dollar shorting, with Bank of America calling short USD the “most crowded trade” in their latest survey. This positioning may cap the upside potential unless geopolitical risks intensify further.
Outlook: Risk Events to Dominate Dollar Direction
The DXY’s rebound reflects renewed geopolitical risk appetite for the dollar, but sustained upside hinges on the duration of the Israel-Iran conflict and its impact on oil markets and Fed expectations.
If tensions persist, safe-haven flows and inflation-linked repricing of U.S. rates could reinforce dollar strength. However, underlying political risks and Fed uncertainty still pose headwinds.