Long-term US Treasury yields hovering near two-decade peaks have only nudged the dollar index by a mere 0.03 points. Spot prices are barely holding above 99.50, with the day's trading range limited to just 17 points; the index continues to trade below the 200-day exponential moving average (EMA) around 99.75, a level that has capped every rally attempt over the past two weeks.
Rate differential advantages are not materializing as expected. The US 30-year Treasury yield has climbed to around 5.3%, marking its highest level since June 2007. By conventional logic, this alone should bolster the dollar, but that hasn't happened this time, because yields are rising simultaneously across global markets. Japan's 10-year government bond yield has hit a three-decade high; Germany's 30-year yield has reached its strongest level since 2011; France's 30-year yield has returned to levels not seen since 2008; and long-end yields in the UK, Italy, Switzerland, and Canada have also moved higher.
Exchange rates are relative prices, and this episode represents an absolute rise in yields across the board globally. A yield increase only benefits a currency when that country's rates climb faster than those of its trading counterparts; the synchronized expansion of global term premia has left no currency with a relative rate advantage. The euro carries a 57.6% weight in the dollar index, and with German long-end bonds being sold off in tandem with US Treasuries, this single factor offsets more than half of the index's weighting impact—before even accounting for the other five currencies.
The yen's contribution isn't even neutral. With a 13.6% weight, Japan's bond yields at multi-decade highs are prompting the world's largest overseas capital pool to repatriate funds home, halting the provision of carry trade liquidity abroad. Add in the pound and Canadian dollar—both with long-end yields also rising recently—and over 80% of the dollar index's component currencies are being repriced by this same force.
Policy expectations that once underpinned the dollar are now turning lower. What truly drives currency pricing is the policy-expectations segment of the rate curve, and current expectations are turning bearish for the dollar. Interest rate futures implied probabilities show a 65.4% chance of rates staying unchanged on September 16, a 52.4% probability of no move on October 28, and just 33.0% odds of holding steady on December 9. As recently as August 10, markets were confident of a December hike. In just eight trading sessions, roughly one-third of terminal rate hike expectations have been priced out; no rate cut is priced into any 2026 meeting, with the earliest cut expectations not appearing until 2027.
This is not the start of a rate-cutting cycle—it's a delay in the timing of hikes. That strips the dollar of its carry trade appeal while failing to provide the recession fears that would offer it safe-haven support. Tuesday's data did nothing to bolster hike expectations. US July housing starts came in at 1.239 million units versus the 1.35 million expected and 1.415 million prior; pending home sales fell 2.3% month-over-month against expectations of a 0.3% rise; and industrial production rose 0.2%, below the 0.3% forecast. Only Monday's August New York Fed manufacturing index stood out, printing at 20.6 against an 11 forecast, but survey-based optimism doesn't get factored into rate market pricing.
Safe-haven buying is also absent. Driven by the same forces pushing long-end yields higher, risk appetite weakened during Asian and European trading hours. Washington has confirmed it is not—and has no plans to—negotiate with Iran, the maritime blockade remains in place, and international crude prices have climbed above the $85 per barrel mark. In the past five years, such a combination would have been bullish for the dollar, yet the dollar index has shown no reaction. In this context, the 17-point narrow range doesn't signal market calm—it signals a market with no further narrative to trade.
Since retreating from the late-June high near 101.75, the dollar index has been consolidating around the 200-day EMA over the past two weeks. The daily StochRSI is near 14, sitting at the bottom of its range for a second consecutive week, yet no rebound signal has emerged. This suggests sellers are simply patient, not exhausted.
Key events ahead this week. Wednesday at 18:00 GMT, the Fed's July 28-29 FOMC minutes will be released, marking the first high-impact event of the week. At the July meeting, three Fed governors voted for a 25-basis-point rate hike; over the past three weeks, markets have already priced out the possibility of that hike, so these minutes will test how isolated that small hawkish faction truly is. Thursday brings US initial jobless claims, expected at 210,000 against 209,000 prior, and the Philadelphia Fed manufacturing survey, forecast to fall sharply from 41.4 to 25. Friday will see the August flash PMIs, the week's second high-impact data point and the only comprehensive survey capable of significantly altering September rate pricing: manufacturing PMI is expected at 53.8 (prior 53.9), with services at 54 (prior 54.6).
Key levels for the dollar index. Resistance: the 200-day EMA near 99.75 provides immediate overhead pressure; above that sits the round 100.00 handle; the descending 50-day EMA around 100.25—if the daily close moves above this level, it would signal an end to the current downtrend. Support: intraday support at 99.50; a break below opens 99.25; the next target is the late-May low at 98.75.
Outlook: bearish on the dollar. Global long-end yields are undergoing synchronized repricing, and the relative rate advantage that once underpinned the dollar is fading. Price action showing a 17-point narrow range below the 200-day EMA is building toward a downside break, not forming a base. Only a daily close above 100.25 would invalidate the bearish thesis.
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