The US dollar remained relatively steady for the second consecutive day following remarks from Federal Reserve Chair Jerome Powell. The comments were closely followed as traders looked for new information regarding the direction the Federal Reserve might be taking. This affected market sentiment to a certain extent although Powell refrained from giving any clear signals. However, Powell’s cautious optimism concerning inflation could support bets that the Fed could take a softer approach soon. Expectations for a September interest rate cut remain elevated while markets price an additional rate cut this year, bringing the total to three for 2024.

This shift has notably affected Treasury yields which have been under pressure in anticipation of the highly expected rate cuts. Increasing expectations of a softer monetary policy could drive yields lower still. In this regard, 10-year Treasury yields are well below this year’s peak and could move under this month’s lows if economic data supports current market expectations.

Looking ahead, the trajectory of the dollar and Treasury yields will heavily depend on forthcoming US economic data, particularly June’s retail sales figures expected later today. Market consensus anticipates unchanged retail sales for June, compared to a 0.1% increase in April, indicating expectations of a weakened consumer sentiment. Persisting softness in consumer spending may further impact the dollar and Treasury yields in the near term.