Insights 
VT 
The US Dollar Index (DXY), which measures the US Dollar against six major currencies, is declining towards recent lows, trading around 99.60. This decrease is partly due to the drop in the 30-year US Treasury bond yield, now at 5.05% from 5.15%.
The US Dollar has weakened following concerns over the increasing fiscal deficit as a new budget proposal progresses to the Senate. This budget, recently approved by the US House of Representatives, could increase the deficit by $3.8 billion.
Impact Of Pmi Data
Stronger US S&P Global PMI data provided some support to the Dollar. The Composite PMI rose to 52.1 in May from 50.6 in April, with the Manufacturing and Services PMIs also showing increases.
Fed Governor Christopher Waller commented on fiscal policy, suggesting potential rate cuts ahead. According to the CME FedWatch tool, there is a 71% chance that interest rates will remain steady at upcoming meetings.
Against other currencies, the US Dollar is weakest against the Japanese Yen, down by 0.42%. Exchange rate shifts are detailed in a heat map, providing percentage changes across major currencies.
What we’re seeing here is a US Dollar (USD) struggling to find strength, as the US Dollar Index (DXY) drifts lower near the 99.60 level — a value that takes us back to recent lows not visited since earlier in the quarter. Pressure has mounted, notably from a drop in longer-dated Treasury yields, with the 30-year bond sliding from 5.15% down to 5.05%. This movement would naturally weigh on the USD, as falling yields reduce the return on holding US assets.
On top of that, the federal budget discussions in Washington are beginning to take their toll. Legislators in the House have passed a proposal that would expand the deficit by $3.8 billion, pushing the total further into red territory. That’s not a number that global markets ignore lightly. For us, this development suggests markets are adjusting expectations about the fiscal backdrop — and perhaps pricing in higher spending without revenue support. That usually means greater inflation risk over the long term, but in the short term, it tends to dent the Dollar.
Now, the composite S&P Global PMI data would normally offer a bit more optimism. The figure landing at 52.1 for May marks an expansion, up from April’s 50.6. Both manufacturing and services contributed to this rise, which suggests business activity is firming after what was a rather hesitant first quarter. Despite this, the support these numbers offered the Dollar was only temporary. Markets seem more fixated on rate expectations than on current activity.
That brings us directly to remarks from Waller, a Federal Reserve Governor with a fair amount of influence. He noted that the direction of fiscal policy could open doors for potential rate cuts. Now, that wouldn’t happen tomorrow — but it means there’s a recalibration underway. We noticed traders already pricing in a high likelihood (about 71%) that interest rates will remain where they are over the next meetings, according to the CME’s FedWatch tool.
Let’s be clear: flat rates while inflation ticks sideways, coupled with the idea of looser spending, pushes the risk-reward away from the Dollar. The Japanese Yen, in particular, has capitalised on that, with the Dollar down 0.42% against it in recent trading. Yen strength here is less about Japan and more about traders unloading Dollar longs. If the carry trade has less upside, fewer traders want to sit in Dollar-heavy portfolios.
Future Implications For The Us Dollar
Looking ahead, this creates a very specific environment for us to monitor. Yields aren’t running higher, inflation bets aren’t lifting the USD, and political developments are adding doubt rather than clarity. The heat map of exchange rates lays out how this pressure is playing out: the USD is broadly weaker, with its performance against the Yen at one of the more visible extremes.
What that tells us, plain and simple, is rate positioning will matter more than near-term growth data. Any further signals from policymakers that suggest comfort with the current rate level — or hints at easing — could reinforce these patterns. We should be looking closely at how the pricing of October and December Fed meetings adjusts. Volatility in nominal yields, particularly in the 10-to-30-year range, will offer the clearest signal on direction. Keep an eye also on forward rate agreements, especially how the spread between three-month interest rate expectations six months from now fluctuates. That tends to lead futures contracts adjustments, which in turn ripple through into option volatilities and skew.
The current swings also mean we can’t ignore dollar correlations with equities. When business data improves — like the PMI rebound — but the Dollar still drops, it reflects a shift in what traders value. That dislocation is a window we should watch. It tends to get priced out quickly, and until that happens, the expectation of a weaker USD could strengthen.
