Dollar: Rising Yields Threaten Housing and Risk Sentiment — MUFG

The U.S. dollar index is currently trading near 99.444. MUFG analyst Derek Halpenny notes that elevated U.S. Treasury yields and rising mortgage rates are beginning to weigh on the U.S. housing market, with housing starts and pending home sales showing signs of softening.

**Housing Momentum Turning Marginally Weaker**

Halpenny says high borrowing costs are transmitting to the real economy, with cooling demand in the housing sector being one of the first visible signals. Softening in housing starts and pending home sales data suggests residential investment, which previously supported the economy, may face phased downward pressure.

**Risk Sentiment Faces Spillover Pressure**

The analyst also cautions that persistently high yields not only pressure the housing market but may also spread to broader consumption and investment sentiment through wealth effects and credit channels. If mortgage rates remain near current levels, market pricing of economic growth prospects could turn more cautious.

**Dollar-Yield Linkage Remains in Focus**

Against the backdrop of elevated yields, the dollar index had previously found support, while low-yielding currencies such as the Japanese yen faced downward pressure. However, as housing data weakens, market assessments of the Fed's policy path may be recalibrated, and the linkage between yields and the dollar still requires validation from subsequent economic data.