MUFG analysts cite unclear Fed messaging and rising inflation fears as key drivers of recent dollar weakness and steeper yield curve.
The US dollar fell after Federal Reserve Chair Kevin Warsh failed to clarify the FOMC’s decision to hold rates, triggering a sell-off in long-dated Treasuries. The 2s10s spread widened at its fastest pace since August 2022, reflecting growing market uncertainty over Fed policy direction.
Investors are weighing three potential explanations: a more passive Fed approach risking policy lag, earlier-than-expected balance sheet adjustments, or ideological resistance to rate hikes. Rising inflation expectations and concerns over Fed credibility have amplified depreciation risks for the dollar.
President Trump’s comment that Warsh “would love to see lower rates” further unsettled markets, highlighting perceived political influence and divisions within the FOMC. The combination of unclear guidance and external pressures has left traders cautious on the dollar’s near-term outlook.