US Dollar: Lower yields pressure USD as December hike looms - Rabobank

Rabobank strategist Molly Schwartz notes US Treasury yields fell across the curve, pressuring the US Dollar (USD) even as the US Dollar Index (DXY) stays close to 102. She highlights evolving Fed communication and multiple officials stressing inflation risks from AI, tariffs and energy. Rabobank expects one more Fed rate hike at the December 2026 FOMC meeting, followed by a prolonged hold through 2027.

Dollar pressured by lower yields

"US Treasury yields fell across the curve yesterday, with the 2-year yield declining 2.3bp from Monday’s close and the 10-year yield dropping 4.5bp to 5.26%. The move weighed on the USD, the third-worst-performing G10 currency of the day, but the DXY Index remains near its recent high of 102."

"San Francisco’s Mary Daly (an alternate voting member) noted that the coinciding forces of AI, tariffs, and energy may indicate the need for additional hikes. Her comments were later echoed by Schmid, who also opined on the persistence of inflationary pressures and said that the Fed is fighting not only to control inflation but also to maintain its credibility."

"For now, however, AI appears to be inflationary, particularly with respect to computer software and accessories, which have bucked the deflationary trend for the first time since 1998, with prices continuing to rise since the beginning of 2026. Rabobank is forecasting one more Fed hike at the December 2026 FOMC meeting, followed by a hold through 2027."

"In the US, the FOMC meeting minutes and the New York Fed’s 1-year inflation expectations are due, along with consumer credit data for August."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)