The relationship between the US Dollar Index (DXY) and the 10-year US Treasury yield is generally positive but has shown signs of weakening and occasional breakdowns recently.
Key Points:
Typical Positive Correlation:
Historically, when the 10-year Treasury yield rises, the dollar tends to strengthen, and when yields fall, the dollar weakens. This is because higher yields attract foreign capital seeking better returns, increasing demand for the dollar. Conversely, lower yields reduce dollar appeal.
Mechanism:
The 10-year yield reflects investor expectations about inflation, economic growth, and Federal Reserve policy. Higher yields often signal stronger growth or inflation, supporting a stronger dollar due to higher real returns on US assets.
Recent Weakening of Correlation:
Since early 2025, this positive correlation has weakened significantly. Despite rising 10-year yields (around 4.4% to 4.5%), the DXY has hovered near the 98–99 range and even declined over 10% year-to-date. This divergence is attributed to:
Investors re-evaluating the dollar’s reserve currency status and shifting capital to other markets (e.g., European equities).
Outflows from US assets amid geopolitical and economic uncertainty.
Asynchronous monetary policy cycles globally, with some central banks hiking or cutting rates at different paces than the Fed.
Market Sentiment and Safe-Haven Flows:
In times of stress, the dollar’s traditional role as a safe haven can be challenged, further complicating the yield-dollar relationship.
Conclusion
While the 10-year Treasury yield and the US dollar index usually move together, recent market dynamics have disrupted this pattern. Rising yields have not translated into a stronger dollar in 2025, reflecting broader shifts in investor sentiment, geopolitical risks, and global monetary policy divergence.
Key Points:
Typical Positive Correlation:
Historically, when the 10-year Treasury yield rises, the dollar tends to strengthen, and when yields fall, the dollar weakens. This is because higher yields attract foreign capital seeking better returns, increasing demand for the dollar. Conversely, lower yields reduce dollar appeal.
Mechanism:
The 10-year yield reflects investor expectations about inflation, economic growth, and Federal Reserve policy. Higher yields often signal stronger growth or inflation, supporting a stronger dollar due to higher real returns on US assets.
Recent Weakening of Correlation:
Since early 2025, this positive correlation has weakened significantly. Despite rising 10-year yields (around 4.4% to 4.5%), the DXY has hovered near the 98–99 range and even declined over 10% year-to-date. This divergence is attributed to:
Investors re-evaluating the dollar’s reserve currency status and shifting capital to other markets (e.g., European equities).
Outflows from US assets amid geopolitical and economic uncertainty.
Asynchronous monetary policy cycles globally, with some central banks hiking or cutting rates at different paces than the Fed.
Market Sentiment and Safe-Haven Flows:
In times of stress, the dollar’s traditional role as a safe haven can be challenged, further complicating the yield-dollar relationship.
Conclusion
While the 10-year Treasury yield and the US dollar index usually move together, recent market dynamics have disrupted this pattern. Rising yields have not translated into a stronger dollar in 2025, reflecting broader shifts in investor sentiment, geopolitical risks, and global monetary policy divergence.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.