US Dollar Index: Higher yields and FOMC focus lift DXY – MUFG

Lloyd Chan at MUFG notes that US rate expectations remain volatile, with markets now pricing further Federal Reserve (Fed) tightening this year. Rising Treasury yields have pushed the US Dollar (USD) higher, lifting the US Dollar Index (DXY). Next week’s Federal Open Market Committee (FOMC) meeting is seen as pivotal as investors await Chair Kevin Warsh’s guidance on whether to validate or challenge the market’s hawkish repricing.

Rising yields and Fed pricing support Dollar

"US rate expectations have remained volatile."

"Markets are now pricing around 44 bps of cumulative Fed tightening this year, with a September 25bps rate hike fully priced, after briefly scaling back hawkish expectations following softer-than-expected June CPI data."

"Treasury yields have continued to move higher, with the 2-year yield rising 5bps to 4.35%, its highest level since early 2025, while the 10-year yield has climbed 4bps to 4.69%."

"The rise in yields has supported the US dollar, with the DXY index gaining 0.3% to 101.44."

"Next week’s FOMC meeting will be pivotal, as investors look to Fed Chair Kevin Warsh for guidance on whether the Fed will validate the market’s hawkish repricing or push back against expectations of tightening."