US Dollar Ends Week Near Three-Week Low as Treasury Yields Decline and Yen Gains
Report by CYS Global Remit Counterparty Sales & Alliance Unit
USD/SGD | 1.2732 – 1.2833 |
The US dollar ended the week under pressure, with the US Dollar Index (DXY) trading near a three-week low amid falling Treasury yields, renewed risk aversion and anticipation of several major central-bank meetings. The index touched 101.44 on Thursday, its weakest level since early October, before trading between approximately 101.52 and 101.64 on Friday. This marked the dollar’s second consecutive weekly decline, reversing some of its earlier gains.
The dollar’s weakness was primarily driven by falling US bond yields rather than a single economic data release. Meanwhile, concerns over technology-sector valuations and the sustainability of artificial intelligence (AI) investment triggered a broader equity sell-off, prompting investors to seek safer assets. These developments supported the Japanese yen and reinforced downward pressure on the greenback.
With several central banks preparing to announce monetary-policy decisions, investors remained cautious, limiting significant directional moves ahead of the upcoming announcements.
Falling Treasury Yields and Risk Aversion Pressure the Dollar
The decline in US Treasury yields was the main factor weighing on the dollar. The benchmark 10-year Treasury yield fell sharply during the week, dropping below 5% for the first time in a month and reaching approximately 4.953% on Friday. Lower yields reduce the relative return on dollar-denominated assets, potentially weakening demand for the US currency.
The decline in yields coincided with a sell-off in global equities, driven by concerns about elevated technology valuations and the sustainability of AI-related investment. As investors reduced their exposure to riskier assets, demand for government bonds increased, pushing yields lower and supporting traditional safe-haven currencies.
Despite Brent crude prices remaining above US$110 per barrel, inflation concerns appeared to take a back seat to worries about economic growth and equity-market valuations. This suggested that investors were prioritising risk management over concerns that higher oil prices could sustain inflationary pressure.
The dollar’s performance against other major currencies was mixed. The euro slipped 0.3% to approximately US$1.1198 on Thursday, while sterling remained relatively resilient following stronger-than-expected UK inflation data. The Dollar Index also recorded a modest rebound during the week, briefly rising 0.14% to 101.82, indicating that investors were still adjusting their positions ahead of key policy announcements.
Emerging-market currencies delivered mixed performances as local economic conditions influenced exchange rates. Brazil’s real strengthened to around 5.05 per US dollar on October 19, gaining approximately 0.5% on the day. In contrast, the US dollar appreciated against Bangladesh’s taka as increased demand for foreign currency to settle letters of credit pushed the weighted average exchange rate to Tk 122.85 from Tk 122.75 two days earlier.
These contrasting movements highlighted that, although global risk sentiment and US yields remained important drivers, domestic liquidity conditions, political developments and payment requirements continued to influence individual currencies.
Yen Strengthens Ahead of Key Central-Bank Decisions
The Japanese yen was the strongest-performing major currency against the dollar during the week. It gained approximately 0.3% on Friday to reach 156.28 per US dollar, its strongest level in more than a month. The currency was on track for a weekly gain of around 1%, its largest since early September.
The yen’s appreciation reflected increased safe-haven demand and declining US Treasury yields. Investors seeking to reduce risk exposure supported the Japanese currency, which had traded around 157–158 per dollar earlier in the week. Expectations surrounding the Bank of Japan’s upcoming policy meeting on October 30 also attracted market attention.
The week ahead features a concentrated schedule of central-bank decisions. The US Federal Reserve is scheduled to announce its policy decision on October 28, followed by the European Central Bank on October 29 and the Bank of Japan on October 30. The Bank of Canada and the Reserve Bank of New Zealand are also scheduled to announce decisions within the same three-day period.
The Federal Reserve’s policy rate currently stands at 3.75%–4.00%. With policymakers in their pre-meeting blackout period, investors have had fewer opportunities to assess the Fed’s outlook through public commentary. Consequently, attention has shifted towards incoming economic indicators, particularly preliminary October purchasing managers’ index (PMI) reports from Germany, the eurozone, the United Kingdom and the United States.
These releases could provide further insight into economic momentum and influence expectations for future interest-rate decisions. Differences in monetary-policy outlooks between major central banks may subsequently affect capital flows and currency valuations.
The dollar’s second consecutive weekly decline reflected falling US Treasury yields and increased demand for safe-haven assets amid renewed concerns about equity valuations and global growth. Meanwhile, the Japanese yen strengthened as investors adopted more defensive positions ahead of the Bank of Japan’s policy meeting.
Although the dollar remains under pressure, its future direction is uncertain. Upcoming central-bank decisions, economic data and changes in global risk sentiment will be crucial in determining whether the recent weakness continues or the currency stabilises in the coming week.
