Dollar: Momentum Fades as Yields Stay Elevated — MUFG

The dollar index extended its recent softness despite upward revisions to US economic data forecasts. MUFG analyst Lloyd Chan noted that the US third-quarter GDP annualized forecast has been revised up from 2.0% to 2.5%, but the dollar failed to gain a boost. High fiscal deficits and long-dated Treasury yields are emerging as key factors weighing on dollar sentiment.

**Growth Expectation Upgrade Fails to Reverse Dollar Weakness**

An upward revision to GDP forecasts is typically seen as a sign of economic resilience, but market reaction has been muted. MUFG's view suggests investors are now shifting focus from growth data alone to long-term risks surrounding US fiscal health. The firm's research head Derek Halpenny previously noted that a better risk environment and improved global growth expectations could lead to a weaker dollar, as investors rotate into non-dollar assets.

**Fiscal and Yield Concerns Dominate Sentiment**

Lloyd Yu emphasized that persistently high fiscal deficits and long-dated Treasury yields are eroding market confidence in the dollar. This concern is not isolated—recently, US Treasury Secretary Bessent announced measures to stabilize the bond market and push down long-term borrowing costs that have hit multi-year highs, including a surprise expansion of long-dated bond buybacks, but the market reaction was short-lived, underscoring the challenges in addressing structural issues. Against this backdrop, the dollar's safe-haven appeal has been undermined, and its performance remains relatively sluggish even in a market environment still marked by geopolitical uncertainty.