The U.S. dollar moved higher overnight (and coming into the US session), driven by classic flight-to-safety flows following Israel’s strike on Iran. However, U.S. yields did not follow the usual script—instead of falling amid geopolitical stress, they moved higher.
This divergence from the typical Pavlovian response raises questions. It may reflect rising oil prices and the renewed threat of inflation, which can put upward pressure on yields. Alternatively, it could be a technical retracement, with yields rebounding after recently dipping below key benchmarks—4% for the 2-year, 4.5% for the 10-year, and 5% for the 30-year—that had served as rough markers for the yield curve in recent weeks.
Or perhaps it’s something broader: investor fatigue with the constant swings in policy tone from the Trump administration and escalating global tensions. Whatever the reason, markets are behaving less predictably—adding another layer of complexity for traders and policymakers alike.
Regardless of the reason, today yields moved higher.
Looking at the near-closing levels in the US debt market:
- 2 year yield 3.952%, +4.6 basis points.
- 5-year yield 4.008%, +4.9 basis points
- 10 year yield 4.408%, +5.2 basis points.
- 30 year yield 4.901%, +5.9 basis points
The U.S. dollar initially rose on the back of flight-to-safety flows, but those gains began to fade as the day progressed. While the greenback is still closing higher against all major currency pairs, it has pulled back significantly from its intraday highs.
Despite the late-day retracement, a look at end-of-day levels shows the dollar posted gains across the board, finishing stronger versus each of the major currencies.
- EUR 0.38%
- GBP 0.39%
- JPY +0.39%
- CHF +0.15%
- CAD +0.06%
- AUD +0.72%
- NZD +0.96%
For the trading week, although the USD was higher for the day, it was lower for the week:
- EUR -1.79%
- GBP -0.26%
- JPY -0.53%
- CHF -1.26%
- CAD -0.70%
- AUD unchanged
- NZD -0.06%
US stocks fell in trading today and that helped to push the major indices negative for the week:
- Dow -1.79% for the day and -1.32% for the week
- S&P -1.13% for the day and -0.39% for the week.
- NASDAQ index -1.30% for the day and -0.63% of Week.
Looking ahead, geopolitical tensions between Israel and Iran are expected to keep markets on edge, fueling ongoing uncertainty. At the same time, a packed central bank calendar will shape the direction of global monetary policy, with the Federal Reserve taking center stage on Wednesday.
While the Fed is widely expected to keep rates unchanged, the market’s attention will be firmly on the policy statement, economic projections, and the dot plot outlining future rate expectations. This comes on the heels of cooler-than-expected inflation data, which has eased some pressure. However, the potential inflationary impact of tariffs remains a concern, as does the risk of softening labor markets.
Other key central banks will also be in the spotlight. The Bank of Japan will announce its decision on Tuesday—no change is expected as policymakers remain firmly dovish. On Thursday, the Bank of England is also expected to hold rates steady, while the Swiss National Bank is anticipated to deliver a 25 basis point rate cut, potentially lowering its policy rate to 0.00%.
Beyond central banks, the economic calendar is also active, featuring U.S. retail sales, Australian employment figures, and the latest reading on UK GDP—all of which could provide further insight into the global growth outlook.
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