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The dollar continues to decline in European trading as concerns about Trump’s tariffs loom over the market. Traders are apprehensive about the potential recession in the US economy due to this uncertainty.
US 10-year yields fell by 13 basis points to 4.068%, marking the lowest levels since October of the previous year. This decline has influenced the USD/JPY rate, which dropped 1.7% to 146.75, nearing March’s lows.
In other currency movements, EUR/USD increased by 1.5% to 1.1013, and GBP/USD rose by 1.2% to 1.3161. USD/CAD reached fresh yearly lows at 1.4123, while AUD/USD climbed by 0.6% to 0.6336.
Tariff concerns drive market positioning
That said, the previous section paints a clear picture of how traders are reacting to mounting tariff rhetoric in the United States. Growing concerns around weakening domestic demand and a slowing economy have been pushing flows away from the dollar, which remains under pressure in European hours. What we’re witnessing is a shift in positioning, driven largely by falling Treasury yields and mounting fear that policy tools may become stretched if growth expectations continue to sour.
Bond markets are already adjusting. The sharp drop in 10-year yields—down 13 basis points to just above 4%—suggests that fixed-income investors are pricing in a softer economic outlook, perhaps even beginning to factor in a policy pivot sooner than previously expected. This is not minor. It underlines the sentiment that monetary tightening may have run its course or, at the very least, cannot be further extended without harming the broader economic cycle.
With that, the yen was given breathing room. The move lower in USD/JPY is not just technical—we’ve been watching that 146.80 zone for a while. It coincides with the year’s lows and aligns with yield differentials that clearly favour the Japanese side in current conditions. Bond-sensitive currencies have been among the most reactive, so this fits the broader pattern.
Euro and pound reflect changing rate expectations
In the euro and sterling pairs, there’s a similar story, but different gears. The euro’s strength over the dollar, nearing the 1.10 mark again, likely reflects the reduced rate advantage the USD previously held. In the UK, a stronger pound tells us that the market is pricing out some of the downside risk supply data had implied earlier in the quarter. That 1.3160 level in GBP/USD also reflects improvement in rate differentials—just a few weeks ago, that figure seemed out of reach.
Few assets behave quite like the Canadian dollar under pressure from both commodity shifts and risk-off sentiment. The fresh lows observed in USD/CAD are in line with higher oil prices, which tend to support the loonie even when uncertainty looms. In this case, the yearly lows don’t look one-off—they’ve been approached with persistent volume on dips. Momentum indicators favour further testing of those levels.
As for Aussie dollar advances, what we’ve been tracking there is a gentle build-up, less rapid than other G10 peers. Still, upward moves, even at 0.6% today, are meaningful. Risk appetite remains shaky. So when AUD/USD continues to firm despite a cautious equity tape, it suggests investors believe China-related softness may already be accounted for.
For those navigating leveraged positions, the directional play has become more about yield expectations than headline-driven moves. Volatility metrics underscore this shift—FX vols are higher on the dollar side, not necessarily on the crosses. We’ve found it effective to lean on options pricing to detect short-term conviction. This can help distinguish real dislocations from noise.
Looking ahead, rate pricing is going to matter more than rhetoric. With fresh lows and breakouts across several pairs, it will be necessary to monitor not just levels, but the way spreads evolve. US data surprises now have an outsized impact, so sudden moves in fixed income can drag positioning sharply with them. Watching yield curves and repo market jitters in tandem can give early clues.
We continue to reduce exposure to dollar longs. There are better opportunities elsewhere. Sterling and euro longs carry improved risk-reward ratios at these levels, especially if we see further disinflationary data from the States. If price action in USD-based pairs continues deteriorating around key supports, we’d avoid catching reversals too early.
Also, it’s worth keeping an eye on cross-currency basis swaps. They’ve begun to widen again, especially when dollar funding becomes erratic, which often happens after sharp bond-market moves. That’s historically been a reliable early signal of either a reversal or further pressure.
Overall, directional conviction is starting to build across the board. For those positioned in rate-sensitive strategies, it’s no longer a matter of wait and see. It’s about making decisions while volatility is still favouring trend-following setups, instead of mean-reverting ones. Timing matters—and in this context, more than usual.
