United States Dollar Index hold gains above 99.50 as Treasury yields hit multi-year highs

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is gaining ground for the second successive day and trading around 99.70 during the Asian hours on Wednesday.

The Greenback has strengthened amid rising bond yields and surging oil prices, which have reignited concerns over persistent inflation and the likelihood of potential interest rate hikes. Driven by a global bond selloff, the US 10-year Treasury yield surged to 4.80%, reaching its highest level since early 2025. Compounding these inflationary pressures, crude oil prices jumped significantly following escalating hostilities between the United States and Iran, intensifying worries over potential energy flow disruptions from the Middle East.

Meanwhile, recent economic data from the US offers a mixed backdrop for broader market sentiment. July JOLTS job openings fell below market expectations at 7.27 million, while the ISM Manufacturing PMI eased slightly from 55.6 to 54.6 in August. Despite missing forecasts, the PMI remains firmly in expansion territory, pointing to a resilient manufacturing sector. Investors are now turning their attention to the upcoming ADP employment report and Friday's nonfarm payrolls to gauge the Federal Reserve's next move on interest rates.

Dollar support tempered by rising fiscal risk premium

Strategists at Brown Brothers Harriman highlight that Bessent has pushed back against the view that the latest rise in Treasury yields primarily reflects mounting worries over US fiscal sustainability, pointing instead to the “outperformance of US 10-year Treasuries relative to other major bond markets.” They caution, however, that this “relative outperformance does not make the fiscal risk disappear,” warning that “rising interest expense will ultimately push up the US Treasury term premium, leaving USD more vulnerable to periods of fiscal stress.”