Dollar Slips as T-Note Yields Fall

Core Insights - The dollar index fell by -0.21% due to a decline in the 10-year T-note yield, which weakened the dollar's interest rate differentials, although losses were limited by stronger-than-expected US economic reports [1] Economic Indicators - US January PPI final demand rose by +0.5% month-over-month (m/m) and +2.9% year-over-year (y/y), surpassing expectations of +0.3% m/m and +2.6% y/y [2] - The January PPI excluding food and energy increased by +3.6% y/y, exceeding expectations of +3.0% y/y and marking the largest increase in 10 months [2] - The February MNI Chicago PMI unexpectedly rose by 3.7 points to 57.7, against expectations of a decline to 52.1, indicating the fastest pace of expansion in 3.75 years [3] - December construction spending increased by +0.3% m/m, stronger than the anticipated +0.2% m/m [3] Interest Rate Expectations - The Federal Open Market Committee (FOMC) is expected to cut interest rates by approximately -50 basis points (bp) in 2026, while the Bank of Japan (BOJ) is anticipated to raise rates by +25 bp in the same year [4] - The swaps market is currently pricing in a 6% chance of a -25 bp rate cut at the next FOMC meeting on March 17-18 [3] Currency Movements - The euro rose by +0.22% against the dollar, driven by dollar weakness, although gains were limited by a weaker-than-expected German February CPI report [5] - Eurozone January ECB 1-year CPI expectations fell to 2.6%, below the expected 2.7%, while the 2-year CPI expectations remained unchanged at 2.6% [5] - The USD/JPY fell by -0.06% as the yen appreciated slightly due to dollar weakness, supported by higher Tokyo consumer prices in February [7]