US Dollar (USD) weakness is continuing as concerns over US economic growth persist. US bond yields have decreased slightly, while European yields have generally increased, impacting USD spreads.
The NFIB Small-Business Optimism index fell more than anticipated in February, with economic outlook concerns and pricing plans affecting responses. Currently, the USD is down against all major currencies except the Swiss Franc and Japanese Yen.
Potential Declines In DXY Index
The DXY index is showing signs of further declines, with potential for a 2-4% drop over the coming weeks. The upcoming data releases, including Japan’s PPI and BSI activity surveys, may influence market trends.
With the dollar struggling and concerns over US growth weighing on sentiment, it is clear the market is adjusting its expectations. A softening economic outlook, reflected in the NFIB Small-Business Optimism index, is denting confidence, and that is showing up in the currency’s performance. The dollar is now weaker against all major peers, apart from the Swiss franc and Japanese yen, which tend to attract safe-haven flows in times of uncertainty.
At the same time, shifts in bond yields are tilting rate differentials in a way that does not favour dollar strength. While US yields have edged lower, their European counterparts are pushing higher, narrowing the spread and making the greenback less appealing. Given that much of the dollar’s value proposition has been built around higher yields for some time, this adjustment cannot be ignored.
Changing Market Expectations
The DXY index, which tracks the dollar against a basket of major currencies, is threatening to extend its slide even further. A 2-4% move lower is a clear possibility, particularly if upcoming economic data continues to challenge the outlook for US growth. That makes the next round of releases especially important. Japan’s producer price index (PPI) and business sentiment indicators are among those that could nudge broader currency moves in one direction or another.
With all this in mind, it is not enough to watch the dollar in isolation. The balance between yield movements across regions is shifting, and that is altering how markets weigh risk and returns. Anyone looking at markets in the near future needs to factor in these ongoing changes before adjusting positions.
