US Dollar Decouples from Treasury Yields Amid Policy Uncertainty

The US dollar has diverged from Treasury yields in an unusual market dislocation. Since early April 2025, when former President Donald TRUMP introduced new tariffs, the 10-year yield rose from 4.16% to 4.42% while the dollar index fell 4.7% against major currencies. This breakdown of the traditional correlation has forced traders to reassess volatility hedging strategies.

Market participants note rising yields no longer signal economic strength, but rather reflect growing concerns about fiscal deficits, credit rating downgrades, and unpredictable policymaking. Moody’s recent downgrade of US creditworthiness has pushed credit default swap spreads to levels comparable with Greece and Italy.

The situation intensified after Trump summoned Federal Reserve Chair Jerome Powell to the WHITE House, raising fresh concerns about central bank independence. This policy uncertainty creates potential tailwinds for alternative stores of value including cryptocurrencies.