US Dollar Index remains subdued around 107.00 as Treasury yields continue to fall

• The US Dollar Index loses ground as yields on US Treasury notes extend their losses.
• Trump has confirmed plans to impose a 25% tariff on imports of automobiles, semiconductors, and pharmaceutical products.
• The latest FOMC Meeting Minutes emphasized needing more time to assess multiple factors before considering any rate adjustments.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, depreciates after registering gains for the last two successive days amid falling Treasury yields. The DXY hovers around 107.00. with 2- and 10-year yields on US Treasury bonds standing at 4.26% and 4.52%, respectively, during the European hours on Thursday.

Market participants are now focused on key US economic data, including weekly Initial Jobless Claims, the CB Leading Economic Index, and the Philly Fed Manufacturing Index, set to be released during the North American session.

However, the US Dollar gained ground as risk aversion rose due to concerns over the latest tariffs from US President Donald Trump, who has confirmed that a 25% tariff on pharmaceutical, semiconductor, and auto imports will take effect in April.

The US Dollar may appreciate as the cautious tone rises following the Federal Open Market Committee (FOMC) Minutes from January's policy meeting. Federal Reserve (Fed) policymakers reaffirmed the decision to keep interest rates unchanged in January. They also emphasized the need for more time to assess economic activity, labor market trends, and inflation before considering any rate adjustments. The committee also agreed that clear signs of declining inflation are necessary before implementing rate cuts.

Markets are pricing in one rate cut for the federal funds rate in 2025, with the potential for a second. Fed Vice Chairman Philip Jefferson stated late Wednesday that the US central bank has time to assess its next interest rate move, citing a resilient economy and persistent inflation. Meanwhile, Chicago Fed President Austan Goolsbee acknowledged that while inflation has eased, it remains elevated, emphasizing that rate cuts would be considered once inflation reaches a more acceptable level, according to Reuters.