The dollar index was firm on Tuesday as investors monitored developments around the US government shutdown. Hopes of a breakthrough emerged after National Economic Council Director Kevin Hassett suggested the shutdown could end this week.
At the same time, easing concerns over trade tensions with China could lift the currency. Receding concerns over the US banking sector could also limit the pressure on the dollar.
In the bond market, US yields extended their decline, with the 10-year slipping back below 4% and the 2-year hovering near 3.45%. Rising expectations of Fed easing, with markets fully pricing in a 25 bps cut next week and later this year and the next, could continue to drive yields down.
Looking forward, attention now turns to Friday’s CPI report, which is expected to show stable inflation. A softer print would reinforce the easing narrative, while a surprise to the upside could inject volatility back into both yields and the dollar.
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