Dollar Weakens as Treasury Yields Ease; Fed Minutes in Focus

The dollar was sliding toward levels not seen in months as Treasury yields pulled back from their recent peaks on Wednesday. Investors were holding their breath, waiting for the Federal Reserve to release minutes from its latest policy meeting—a document that might finally clarify whether the central bank still intended to raise rates or had begun to reconsider.

The weakness was visible across the board. The euro climbed to $1.1577, hovering near a two-month high it had touched just days earlier. The British pound sat steady at $1.3533, perched near a three-month peak as traders awaited inflation data from the UK later that day. The Japanese yen, which had bounced back from a multi-decade low of around 164 per dollar after intervention by Japanese authorities, was holding at 159.56—still well above that floor but having surrendered much of its recent gains. The dollar index, which tracks the greenback against six major trading partners, had dipped to 99.65.

The shift in Treasury yields told the real story. The benchmark 10-year note was trading at 4.702%, having extended its decline from earlier in the week. The 30-year bond had fallen further still, to 5.282%. The selling pressure that had gripped the bond market appeared to have paused, at least temporarily, in what was otherwise a quiet week for economic data and major announcements.

What had spooked the markets into reconsidering their rate expectations was a string of softer-than-expected economic signals. July had brought unexpected job losses. Inflation readings had come in milder than anticipated. These data points had prompted investors to dial back their bets on aggressive rate increases. Harvinder Kalirai, chief global fixed income and currency strategist at Alpine Macro, captured the logic plainly: if the Fed did not actually deliver the rate hikes that markets had been pricing in, there was little reason to expect bond yields to climb much higher. The labor market and inflation were both rolling over, he noted, and historically that narrowing of the dollar's yield advantage—the premium investors could earn by holding dollar assets—translated into a weaker currency.

The minutes from the Federal Open Market Committee, due to be released later that day, would be the test. Policymakers' own words about the rate path ahead could either confirm the market's new skepticism or suggest the Fed still had appetite for tightening. Everything hinged on what they had actually said to each other behind closed doors.

One complication lurked in the background: oil prices had climbed to three-week highs on the back of Middle East tensions. President Trump had stated on Tuesday that there were no active negotiations with Iran and that the Strait of Hormuz remained open to shipping, directly contradicting Iran's claim that the waterway was closed. The stalemate kept geopolitical risk premium alive in energy markets, which meant inflation could still surprise to the upside if the situation deteriorated. For now, though, the dominant narrative was one of economic softness and receding rate expectations—a combination that left the dollar vulnerable and bond yields capped.