U.S. Treasury Yields Tumble, Dollar Index Under Pressure
U.S. President Trump's latest remarks on tariffs have once again plunged financial markets into tension. On Friday, the yield on the 10-year U.S. Treasury fell to 4.06%, marking the largest single-day drop this month, while the 2-year Treasury yield also declined to 3.52%. As yields fell, the dollar index quickly retreated, ending its previous strong ascent. Market participants generally believe that Trump's tariff threats have not only weakened investors' risk appetite but also introduced a new wave of uncertainty to the global trade outlook.
Federal Reserve Division Remains, Rate Cut Expectations Supportive
Despite the pressure on the dollar, expectations of rate cuts have injected some stability into the market. Several Federal Reserve officials have recently emphasized the need for monetary policy to remain flexible in response to potential labor market slowdowns. Federal Reserve Governor Christopher Waller noted in a speech that while inflation risks persist, maintaining accommodative policy helps prevent excessive economic contraction.
According to federal funds futures market data, investors overwhelmingly bet with a 95% probability on a 25-basis-point rate cut in October. However, uncertainty remains over a potential further cut in December, with the probability dropping from 90% to 80%. The data void caused by the government shutdown makes forecasting policy paths more challenging.
European Political Stalemate Drags on Euro
In the European market, turbulence in France's political scene is the main factor weighing on the euro. President Macron has yet to find a suitable new prime minister, casting doubt on his ability to push through an austerity budget. The euro has lingered around 1.16 against the dollar, with an expected weekly decline of nearly 1.5%, hitting a two-month low. Analysts believe that political uncertainty combined with weak economies makes it difficult for the euro to regain upward momentum in the short term.
Yen Under Pressure, Hits Annual Decline
Meanwhile, the yen's performance is also uninspiring. Although it briefly rebounded to 152.7 per dollar, it remains generally weak. Political changes in Japan have further dampened interest rate hike expectations. With Sanae Takaichi gaining party support, the likelihood of the Bank of Japan maintaining an accommodative stance has increased. The yen is expected to drop 3.5% this week, marking the largest weekly decline in a year. Japan's Finance Minister Kato acknowledged increased forex market risks but failed to provide clear countermeasures, further eroding market confidence.
Investors Turn to Safe-Haven Assets
Amid heightened fluctuations in the dollar and major currencies, gold and U.S. Treasuries have again become investors' top choices. Market data shows that safe-haven funds are continually flowing into precious metals and long-term bond varieties. Although stock markets briefly recovered due to bargain hunting, overall risk appetite remains low.
Politics and Policy Strategy Dominate Market Trends
Looking ahead, the market focus will center on three areas: first, whether the U.S. government can promptly end the shutdown to resume normal economic data releases; second, how the Federal Reserve balances inflation and employment; third, the direction of political and monetary policy in Europe and Japan. Analysts caution that if political risks continue to spread, the dollar may come under further pressure, while the appeal of safe-haven assets is expected to continue rising.
