"The US dollar edged lower on Tuesday ahead of the release of GDP data, as expectations of further monetary easing continued to weigh on both the currency and Treasury yields. The 10-year yield slipped back, erasing Monday's gains, reflecting renewed caution among investors. While markets broadly expect the Federal Reserve to keep rates unchanged at its January meeting, expectations for 2026 remain tilted toward two rate cuts, leaving the dollar vulnerable to downside surprises in macro data."
"Today's GDP release is seen as a key inflection point for these expectations. Any evidence of economic cooling would likely reinforce the dovish narrative, dragging yields lower and adding pressure on the greenback. This sensitivity could be amplified by thinning year-end liquidity and by recent global monetary policy shifts. In particular, the Bank of Japan's latest rate hike could encourage capital inflows into the yen, further weighing on the dollar if US data disappoints. Comments from Federal Reserve officials have added to the cautious tone."
The US dollar weakened ahead of a key GDP release as expectations of further Federal Reserve easing pressured both the currency and Treasury yields. The 10-year yield fell back, reversing earlier gains amid renewed investor caution. Markets largely expect the Fed to hold rates in January, but pricing for 2026 tilts toward two rate cuts, increasing vulnerability to downside macro surprises. A weak GDP print would likely reinforce a dovish narrative, push yields lower and weigh on the dollar, risks that could be amplified by thin year-end liquidity and global policy moves such as a Bank of Japan rate hike. Divergent Fed comments add policy uncertainty and elevate the GDP print's importance for near-term market direction.
Read at London Business News | Londonlovesbusiness.com
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