Triple Pressure from Fiscal Risk, Soft Data, and Ambiguous Fed Signals Weighs on the Dollar
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The dollar index has slid from its June high of 101.80 to 99.4, as three major banks warn that rising fiscal risk, softening economic data, and ambiguous Fed policy signals are eroding the currency's support in parallel.
Yields are rising — why isn't the dollar following?
The US 30-year Treasury yield hit its highest level since 2007, yet the dollar index fell — breaking the textbook "higher yields → stronger dollar" link.
Saxo Bank strategist Charu Chanana argues the key is why yields are rising: if the market reads the move as fiscal risk and expanded government borrowing rather than economic strength, the dollar does not benefit.
This means → the same yield increase can be "good" or "bad" for the dollar. This week's global bond sell-off, with the dollar flat to weaker, is the "bad" version in action.
Why are dollar longs being unwound?
Société Générale strategist Kit Juckes notes that recent softer US inflation and jobs data have led the market to reprice US rates lower, prompting investors to trim dollar longs.
He sees the dollar index drifting lower or range-trading between 95 and 100 through year-end.
In plain terms = the data that justified betting on a stronger dollar have softened one after another, and traders are stepping aside. Thin summer liquidity amplifies the move.
Is the Fed itself sending "mixed signals"?
Deutsche Bank global FX head George Saravelos flags Fed Chair Kevin Warsh's "mixed signals" on the inflation target and policy tools as an additional dollar negative.
Deutsche stayed out of the dollar-bull camp this year, citing three factors: resilient global growth, geopolitical challenges to dollar dominance, and uncertainty about the Fed's reaction function.
Saravelos adds that if the Fed significantly expands the FIMA repo facility — a tool that lets foreign central banks swap Treasuries for dollars — the economic effect is equivalent to quantitative easing, an indirect headwind for the dollar.
If stocks fall, does the dollar necessarily follow?
BBH strategist Elias Haddad pushes back. Citing US Treasury data, he notes that in the 12 months through June, foreign investors bought a net $920 billion in US equities — more than triple the $294 billion they bought in Treasuries.
This means → the bulk of foreign money in the US is indeed in stocks, but if equities drop, that money is more likely to rotate into Treasuries for safety than to leave dollar assets altogether.
In plain terms = a stock-market correction's damage to the dollar may be overstated — money moving within the dollar system is not the same as money leaving the dollar.
Content is for reference only, not financial advice.