Last Updated on August 24, 2026 by Deon
The US dollar is losing some of its strength even though US Treasury yields are high and the American economy is showing signs of staying strong. According to Lloyd Chan from MUFG the latest movements in the market suggest that the dollars upward movement is starting to slow down as investors pay attention to fiscal risks long-term Treasury yields and the chance of a reneweddebasement trade.
US Economic Growth Remains Strong
One of the reasons the US dollar has been strong is because the US economy is performing well. Economists have recently changed their forecast for US third-quarter GDP growth to 2.5% per year from 2.0%.
Usually better growth expectations can support a currency because they may make investors expect interest rates. However the dollar has not been able to take advantage of this positive economic situation.
MUFG says that investors are now looking past short-term growth numbers and are paying attention to the long-term effects of big fiscal deficits and high Treasury yields.
High Treasury Yields Are Not Helping the Dollar Much
US Treasury yields are still quite high at the longer end of the curve. Even though higher yields can usually make dollar assets more appealing the current situation is more complicated.
Investors are worried that high borrowing needs and a lot of government debt could create risks for the US economy and financial markets. These worries are helping to push discussions about a dollar debasement trade.
Recent efforts by Treasury to increase long-term bond buybacks have also kept the bond market and fiscal policy in the spotlight.
Dollar Price Movement Shows Signs of Weakness
The dollar has moved closer to technical support areas after continuing its recent drop. At the time speculative positions still show a small net-long bias towards the US currency.
This creates a difference: traders are still holding some positive positions on the dollar but the actual price movement is getting weaker.
MUFG thinks that this mix points more towards a fading dollar movement rather than the start of a strong new dollar rise.
Fiscal Concerns Could Stay a Risk
US fiscal policy is becoming more important for currency markets. Large budget deficits and higher long-term borrowing costs can affect investor confidence in the dollar especially if markets start asking for a risk premium for holding US assets.
The discussion about Treasury policy and how to handle long-term yields has therefore become a part of the outlook for the dollar.
At the time investors are watching political and trade events. The United States has put a 50% tax on about $20 billion of products adding another source of uncertainty for North American currencies and the global markets.
What Might Happen to the US Dollar Next?
The short-term outlook for the US dollar may depend on whether it can stay around its support areas. If it manages to bounce it could bring back some positive momentum especially if US economic data stay strong and Treasury yields stay high.
However if the dollar breaks below support levels for a long time it could strengthen the idea that the dollars recent recovery is losing strength.
Markets will also be watching US policy changes, Treasury announcements and Federal Reserve talks during the Jackson Hole meeting. These events could give hints about interest rates, inflation and the future of US yields.
Key Market Takeaways
Factor Potential Dollar Impact
US Q3 GDP forecast Positive
High Treasury yields Mixed
Large budget deficits Negative risk
Small net-long USD positions Supports dollar
Weaker price movement Negative
Trade tensions Brings uncertainty
Treasury bond-buyback policy Important for feelings
The US dollar is dealing with a special mix of strong economic expectations and weak market movement. Even though US growth predictions have gone up and Treasury yields are still high investors are more worried about budget deficits, long-term borrowing costs and the possible risks with the dollar.
MUFGs view says that the difference between positions and price movement is a warning. Unless the dollar can get momentum from support levels the recent weak period could keep going.
For traders the main areas to watch are US Treasury yields, Federal Reserve messages, changes in fiscal policy and key technical support levels in the dollar index and major USD currency pairs. This analysis is, for information only. Should not be seen as financial advice.
