The US Dollar traded lower against major peers on Wednesday, with the US Dollar Index (DXY) down 0.2% at around 99.45, approaching its two-month low of 99.29, as investors awaited the release of the Federal Open Market Committee (FOMC) minutes from the July policy meeting scheduled for 18:00 GMT [4]. The USD was weakest against the Japanese Yen, declining 0.35% on the day, and also fell 0.23% against the Swiss Franc [4]. The USD/CHF pair retreated to near 0.8100, while the NZD/USD traded with mild losses around 0.5875, supported above its 100-day simple moving average [3][6].
Treasury yields, which had reached multi-decade highs earlier in the week, pulled back slightly on Wednesday. The 10-year US Treasury yield fell 2 basis points to 4.686%, the 2-year yield dropped over 2 basis points to 4.154%, and the 30-year yield eased over 1 basis point to 5.272% after hitting a 19-year high above 5.33% on Tuesday [7]. The recent sell-off in long-dated bonds was not limited to the US, as Japan's 10-year yield reached a three-decade high and German and French long-term yields hit multi-year peaks [7]. The US fiscal deficit surged to $432.3 billion in July, the highest since March 2021, bringing the year-to-date shortfall to nearly $1.8 trillion, with interest payments on the national debt totaling about $1.2 trillion this year [7].
Market participants are closely watching the FOMC minutes for clues on the Fed's policy outlook, especially given the divided committee at the July meeting, which saw a 9-3 vote to keep rates unchanged at 3.50%-3.75% [3][4][5][7]. Analysts at ING and Commerzbank expect the minutes to show a less hawkish stance than implied by previous Dot Plots, with limited impact on the Dollar unless broader volatility emerges [3][4][5]. ING notes that while there may be a few hawkish references, the minutes are unlikely to be a game changer, and upcoming CPI, jobs data, and the Jackson Hole symposium will be more decisive for the Fed's next move [5]. The base case from ING and Scotiabank is for no September rate hike, with the Dollar expected to remain range-bound or soften slightly [5][6].
Higher US yields and mortgage rates are beginning to weigh on the housing market, with pending home sales dropping 2.3% month-on-month in July after a 4.8% fall in June, and the 30-year mortgage rate near a one-year high at 6.75% [1]. MUFG's Derek Halpenny highlights that the rise in real long-term yields reflects increased uncertainty over monetary policy, fueled by unclear communication from Fed Chair Warsh, rather than a renewed inflation scare [1].
Geopolitical tensions, particularly in the Middle East, are contributing to a mild risk-off mood and supporting the Dollar as a safe haven, though this effect is being offset by reduced expectations for a September Fed hike following unexpected job losses in July and tame inflation data [3][6][7]. Scotiabank analysts view short-term USD gains as a fade, while BNY strategists question market pricing for further Reserve Bank of New Zealand hikes, suggesting the case for additional tightening is less compelling than investors assume [6].
CONCLUSION
The US Dollar is trading softer as Treasury yields retreat from multi-decade highs and markets await the FOMC minutes, which are expected to have limited impact on Fed rate expectations. Analysts anticipate no September rate hike, with the Dollar likely to remain range-bound in the near term. Elevated yields are starting to affect the US housing market, while global bond market volatility and geopolitical tensions continue to influence investor sentiment.