US Dollar: Structural risks behind yield-driven strength – DBS

DBS Group Research economist Philip Wee argues that recent US Dollar (USD) resilience reflects higher-for-longer US yields rather than genuine fundamental strength. He links rising US Treasury yields to concerns over long-term inflation expectations, fiscal funding pressures, and geopolitical tensions around the Strait of Hormuz. Wee highlights potential back-channel diplomacy with Iran and evolving US-China trade tactics as key to easing inflation and funding risks.

Yield support hides Dollar vulnerabilities

"Last week, the US Treasury 10Y and 30Y yields rose above 4.50% and 5.00%, respectively, warning of a de-anchoring of long-term inflation expectations."

"Since Operation Epic Fury began, the futures market has shifted from pricing Fed cuts this year to a rate hike in late 2026."

"While the USD looks buoyed by the higher-for-longer yield advantage, this strength masks underlying structural vulnerabilities."

"Warsh's stated desire to shrink the Fed’s balance sheet clashes with the Treasury’s need to issue debt to cover the fiscal deficit, now pressured by the US Supreme Court and trade courts’ rulings against Trump’s global tariffs, and by the additional defence bill for the Iran conflict."

"Backed by the imminent risk of a wave of non-OPEC supply hitting the market as alternative oil routes solidify, the administration is attempting to convince bond markets that the current inflationary pulse is transitory, buying the Treasury the breathing room it needs to navigate its structural funding dilemma."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)