Dollar Soars as T-Notes Yields Jump on Inflation Fears

Economic Indicators - The dollar index rose by +0.97% on Monday, reaching a 5-week high, driven by a surge in oil prices to an 8.25-month high, which boosted inflation expectations and reduced the likelihood of additional Fed rate cuts [1] - The US February ISM manufacturing index fell by -0.2 to 52.4, which was stronger than the expected 51.5, while the ISM prices paid sub-index increased by +11.5 to a 3.5-year high of 70.5, exceeding expectations of 60.0 [2] Currency Movements - The EUR/USD fell by -1.08% on Monday, marking a 5-week low, as the dollar's strength negatively impacted the euro, compounded by a significant decline in German retail sales and a surge in European natural gas prices [4] - German retail sales in January fell by -0.9% month-over-month, the largest decline in 19 months, which was weaker than expectations of no change [5] - The USD/JPY rose by +0.89% on Monday, with the yen dropping to a 3-week low against the dollar due to rising crude oil prices and higher T-note yields [5] Market Expectations - Swaps markets are pricing in a 2% chance of a -25 basis point rate cut by the Fed at the upcoming policy meeting on March 17-18, while the FOMC is expected to cut rates by about -50 basis points in 2026 [3] - The ECB is anticipated to leave rates unchanged in 2026, with only a 1% chance of a -25 basis point cut at its next meeting on March 19 [5]