The US dollar was trading relatively flat in the early European session as volatility and uncertainty retreated compared to last week. The greenback’s stability continues to be influenced by market participants’ assessments of potential Federal Reserve rate cuts. Following a period of volatility marked by broad sell-offs across different markets, reduced concerns about the state of the US economy and the Bank of Japan’s stance led to a calmer end of trading last week. Strong US jobs data tempered immediate Fed rate cut expectations, though markets still anticipate significant easing by year-end which could maintain the pressure on the dollar.

Treasury yields remained volatile to a certain extent and could affect the dollar’s performance. While yields rebounded to a certain extent after recession fears subsided, they could remain under pressure as the interest rate cut cycle draws closer. Looking ahead, a potential slowdown in July’s US Producer Price Inflation (PPI) to 0.1% tomorrow could lead to further dollar weakness and drive Treasury yields lower.