Dollar Rises on Rate Cut Doubts, Surging Bond Yields

The U.S. dollar strengthened in early European trading on Wednesday, driven by growing expectations that the Federal Reserve will postpone interest rate cuts until later this year. This upward movement was also supported by rising U.S. Treasury yields, fueled by a lackluster debt auction.

At 04:10 ET (08:10 GMT), the Dollar Index, which measures the greenback against a basket of six other currencies, had climbed 0.1% to 104.670, edging away from the recent near two-week low of 104.33 reached on Tuesday.

While the dollar’s trading range remains tight as traders await Friday’s release of the U.S. core personal consumption expenditures price index (the Fed’s preferred inflation gauge), it has gained some traction due to rising Treasury yields following a weak demand for two-year and five-year notes at a recent auction.

Furthermore, doubts persist regarding the timing of the Federal Reserve’s first interest rate cut. With inflation remaining above the target, the possibility of another rate hike has not been entirely dismissed.

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, stated on Tuesday, “I don’t think anybody has totally taken rate increases off the table. I think the odds of us raising rates are quite low, but I don’t want to take anything off the table.”

Expectations are for the core PCE index to remain relatively stable on a monthly basis, but any indications of continued inflationary pressures could further strengthen the dollar.