US Dollar Forecast: DXY Slides as Treasury Yields Fall, Gold and Bitcoin Drop

U.S. Dollar Index Dips as Treasury Yields Fall and Market Sentiment Sours

The U.S. Dollar Index (DXY) is under pressure on Tuesday, trading lower against a basket of currencies despite President Trump’s aggressive stance on tariffs. A sharp drop in U.S. Treasury yields and broader economic concerns are diminishing the greenback’s appeal as traders seek safer assets.

Treasury Yields Signal Economic Concerns

The 10-year U.S. Treasury yield dropped to 4.296%, marking its lowest level since December. The 2-year yield also fell nearly seven basis points to 4.094%. The decline in yields reflects increasing demand for bonds as traders brace for potential economic turbulence.

Recent economic data has underscored this caution. The Conference Board’s consumer confidence index fell to 98.3 in February, well below the expected 103.0 and down from 105.3 in January. Additionally, the Philadelphia Federal Reserve’s services index plummeted to -12.9, its weakest reading since April 2023. These metrics, coupled with a decrease in sales/revenue index to -12.7, signal weakening economic momentum.

Chris Rupkey, chief economist at FWDBonds, emphasized the gravity of the situation, stating, “The economy is coming in for a crash landing this year.” His warning aligns with broader market sentiment as traders await the upcoming personal consumption expenditure (PCE) index on Friday, a key inflation gauge for the Federal Reserve’s rate decision in March.

Technical Pressure Weighs on the Dollar

The DXY is trading below its 50-day moving average at 108.018, with downside momentum suggesting a test of the 105.167 to 103.984 retracement zone. The 200-day moving average at 104.956 emerges as a significant downside target. The dollar’s weakness is amplified by declining bond yields, which typically reduce the currency’s attractiveness to investors.

Broader Market Reactions: Gold and Bitcoin Retreat

Gold prices have not escaped the bearish mood, plunging over $31 to $2,921.15 per ounce.

Bitcoin also took a hit, down 5.77%, testing a critical retracement zone between $87,586.32 and $82,676.93. The digital asset is well below its 50-day moving average of $98,493.67, with the 200-day average at $81,616.51 posing as a potential support level.

Market Forecast: Dollar Faces Further Headwinds

With U.S. Treasury yields declining and economic data pointing to a slowdown, the DXY could see further downside movement. Traders should watch the 104.956 level closely. Should bearish momentum persist, a test of the 103.984 mark might not be far off. The upcoming PCE index release could add volatility, influencing both the dollar and broader market sentiment as the Federal Reserve’s policy outlook remains in focus.

More Information in our Economic Calendar.