**U.S. Dollar Strengthens as Treasury Yields Climb: Detailed Analysis of Major Currency Pairs**
*Adapted and expanded from an article originally written by Vladimir Zernov, FXEmpire.com*
The U.S. dollar rose against key global currencies on Monday amid a surge in U.S. Treasury yields, driven by market anticipation surrounding the Federal Reserve’s upcoming interest rate policy. Bond markets have started pricing in fewer rate cuts following upbeat economic indicators, providing solid support to the greenback. Let’s dive deeper into the market dynamics and how major currency pairs such as EUR/USD, GBP/USD, USD/CAD, and USD/JPY are responding to the shifting macroeconomic environment.
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## Treasury Yields Push the Dollar Higher
On Monday, the yield on the benchmark 10-year U.S. Treasury note soared past 4.4 percent, reflecting diminished investor expectations of imminent rate cuts by the Federal Reserve. This move comes after a series of robust economic reports that painted a picture of resiliency in the U.S. economy. As a result, the dollar index (DXY), which tracks the greenback against a basket of six major currencies, climbed over 0.4 percent during the session.
### Key Yield Highlights:
– 10-year U.S. Treasury yield: Rose to above 4.44%, nearing the highest level since late April.
– 2-year Treasury yield: Also showed strength, reflecting stickiness in inflation and robust near-term economic activity.
– The CME FedWatch Tool now suggests the first full Fed rate cut may not occur until September or even later, contrasting earlier projections for June or July.
Treasury yields are one of the most influential, real-time indicators of where investors believe inflation and interest rates are headed. Rising yields often attract capital into dollar-denominated assets, pushing the U.S. dollar higher against foreign currencies.
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## EUR/USD: Euro Weakens as Diverging Central Bank Paths Emerge
The euro lost ground against the dollar on Monday, with the EUR/USD pair falling toward the 1.0760 level in intraday trading. This movement reflects a divergence in monetary policy expectations between the Federal Reserve and the European Central Bank (ECB).
### Factors Pressuring the Euro:
– ECB officials, including President Christine Lagarde, have hinted at potential rate reductions as inflation moderates across the eurozone. Some analysts expect as many as two rate cuts by the end of 2024.
– Meanwhile, economic growth in key European economies like Germany and France has weakened, contrasting with resilient U.S. GDP growth.
### Technical Picture:
– Resistance lies near 1.0790. A break above this level could push the pair back toward 1.0820.
– Key support is present at 1.0725. Should this level fail, EUR/USD might decline toward 1.0700 or lower.
– From a momentum standpoint, the Relative Strength Index (RSI) is nearing oversold territory, but no clear reversal patterns have emerged yet.
### Broader Considerations:
– PMI data for the eurozone have generally underperformed, signaling weak business expansion.
– ECB wage and inflation data will play a key role in determining the timing and scope of any ECB rate cuts.
Market sentiment continues to favor the dollar over the euro due to the fundamentally stronger U.S. economic outlook combined with less aggressive policy easing by the Fed compared to the anticipated trajectory in Europe.
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## GBP/USD: British Pound Slides Amid U.S. Dollar Strength
The British pound also succumbed to the pressure of a surging U.S. dollar, with the GBP/USD pair dropping to the 1.2510 level. Although UK economic performance improved in Q1 2024, ongoing uncertainty about monetary policy direction and global risk sentiment has added to the pound’s vulnerability.
### What’s Driving the Pound Lower:
– Traders are scaling back bets on further Bank of England (BoE) rate hikes, with some now expecting a potential rate
Read more on USD/CAD trading.