DXY Gains as Markets Price In Further Fed Tightening

The US Dollar Index (DXY) has seen an increase as Treasury yields rise and markets price in further Federal Reserve tightening. According to Lloyd Chan at MUFG, US rate expectations have been volatile, with investors now anticipating around 44bps of cumulative Fed tightening this year.

Markets had briefly scaled back hawkish expectations following softer-than-expected June CPI data, but Treasury yields have continued to move higher, reaching their highest level since early 2025. The 2-year yield has risen by 5bps to 4.35%, while the 10-year yield has climbed by 4bps to 4.69%.

The rise in yields has supported the US dollar, with the DXY index gaining 0.3% to 101.44. Next week's Federal Open Market Committee (FOMC) meeting is seen as pivotal, as investors await guidance from Fed Chair Kevin Warsh on whether to validate or challenge the market's hawkish repricing.